If you’ve been running your business for a while, you may have a good idea about what your revenue will look like this year. What about next year? If you manage a company, then predicting growth can be one of the hardest tasks you can successfully execute. Forecasts involve a certain amount of guesswork, and some have described it as more art than science. If your next growth phase requires investment or debt, you need to be able to provide a forecast to help ensure the safety of the company and your investors. It can be difficult to predict growth, but some of the following tips can help you do so safely.
Know when to triple/double.
If you have had no experience kickstarting a growth plan like the one that’s impending, you should pay keen attention to your expenses and prioritize them over your revenue. If your forecast spreadsheet doesn’t include fixed costs and variable costs, you should perhaps do a bit more research about the basics of forecasting. If you have a complex spreadsheet with hundreds of different variables that rely on estimation as opposed to experience, you should triple estimates for legal, insurance, and licensing costs as they will almost definitely exceed all expectations. You should also double your estimates for marketing and advertising, which is especially crucial as a B2C business and even more so if you are penetrating the B2C market with B2B experience.
Use the power of your own experience.
Sales of goods or services are likely at the center of your organization, and the more sales avenues you use, your ability to spot trends might be compromised. Keep a firm tally of all sales across platforms and avenues and try your hand at demand forecasting. Demand forecasting analyzes your sales data and then estimates future sales with various algorithms – it is beneficial for keeping a lean enterprise and preventing expenditure on products that will not be a source of revenue to the company. It is a complex technique and requires you to keep tabs on your inventory extensively, so you may need to look into how inventory management helps with demand forecasting.
Keep your feet on the ground while you reach for the stars
The reality of your growth situation will likely be conservative compared to what you’d want in an ideal world. Don’t let that dictate your forecast entirely. Instead, create a conservative projection by forcing yourself to make conservative assumptions and then create a second projection where you relax some of those assumptions and see how your plan can lead to aggressive growth. Doing so allows you to take some perspective while also having a more flexible response to any situation.
Your growth should not be limited by your predictions; at the end of the day, your forecast is there to help you make informed management decisions, as well as helping your investors or creditors to know how they can help you. You should be as honest as possible, as it’ll pay out in the long run, but also know that you do not have all the answers and should take the precautions outlined above to make your projection a safe one.