Having an operating plan is not only important, it's essential. If you don't have an operating plan then luck is the real CEO of your business and you're an employee. I personally hate depending on luck.
The core of an operating plan is a business forecast. Specifically, a sales forecast. Your variable expenses, fixed expense structure, your asset planning, and your cash plans all rely on knowing what volumes and mix you intend on selling your product and services.
Forecasting is also one of the hardest exercises I walk through with clients. There's so many variables and small details in understanding probability.
Just because something's hard doesn't mean your business doesn't need it or that you can stick your head in the sand.
With that being said, let me help you become a less terrible forecaster.
Many of you who know me know I'm a huge fan of Freakonomics. I've read all the books and I listen to the podcasts. The latest podcast they released (as of today, January 16, 2016) is titled How to Be Less Terrible at Predicting the Future. Click on the name, go there, and listen to it. It's pretty amazing.
The main point I'd like you to get out of this is the Ten Commandments of Superforecasting, which can be found here in written text if it's easier (it's almost to the bottom, so scroll down).
I firmly believe these ten commandments can be used to make you a better forecaster. Use them when determining your sales for the next accounting period. Focus on the right questions, strike the right balance between viewing things from inside your business and outside your business, and strike the right balance between overreacting and under-reacting to your business' dynamics. You'll be on the right track to setting your forecast. Your business, your future, and your employees' future all depend on it.
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- James H Johnson, CPA, MBA, CGMA
Connect with me on Twitter @james_h_j