Traditional Strategic Planning does not work
Many Owner and Operations Managers are put off at the idea of business value and sales forecasting. Just think about it. You don’t really need to know how an engine works to drive a car. You don’t need to know how a satellite works to watch TV. Sometimes we do not need to know how a business works to run it. But, other times it becomes crucial… right.
Forecasting is essentially educated guesswork? Or can we minimize the guessing through understanding intangible systems we have identified and placed along with making sure of the accuracy of the data we feed into the forecasting tool, but it still remains guesswork. With that notion, the STS Business Equity System aims to keep things tangible. No financial jargon, just a few suggested techniques and guidelines along with the need for accurate data and the tools required to collect it. The thought of mastering complex forecasting formulas, algebraic equations, linear graphs and a PhD in Excel sheets is certainly unappealing. But there really is no need to over-complicate things. And you certainly don’t need to understand the complexities of a forecasting formula to be an effective forecaster for strategic planning. Exploring value options gives you more power… contact us.
Why Business Value along with Sales Forecasting?
Now you may be wondering why do I need to forecast? Surely I
should just be focusing on sales-driving activities? WRONG!
Quoting Covey, ” Have the ending in mind”, is an essential component of planning for the future of your business. The business value initiatives along with the sales quotas you set – either weekly, monthly or quarterly are determined by the numbers derived from your forecasts. Those quotas are then converted into tangible goals for your field sales team to aim throughout the quarter. The more realistic and perhaps more importantly, reasonable they are the better. Unrealistic targets are demotivating and negatively impact performance. This way there can be no complaints; their targets are, after all, backed by big picture and accurate data for the buy-in. So in essence, the entire direction of your team is based on data derived from business value and sales forecast.
Business Value/Sales forecasting includes:
• Sales Planning
• Marketing Budget/Advertising
• Organizational Structure
• Employee Retention/Management/Ideal Business Model
• Manufacturing Equipment/Processes
and more but all things aside, business value forecasting also has a significant impact a little closer to home. Business Value forecasting is important because it’s tied into so many different aspects of the business including the Owner’s retirement. So, get your forecasts wrong and you could be responsible for losing the sales team or sending a business for an early IPO instead of a private holding losing much equity or not getting the equity out before a better time leaving you with fewer retirement funds. And nobody wants that…
Why is Accuracy Important?
But, is it possible to get close to actual numbers that represent activities of the business if data entered to the model is a little off? In that aspect your data model is very much like training for a sporting event. The point is you only get out of something, what you put in – and sales forecasting is no different. Fill your model with inaccurate, bad data, then expect equally inaccurate, bad forecasts. That’s why the singular most important thing for operations managers and field sales managers is to focus on data accuracy. It doesn’t matter which method you use to forecast, even the highly touted exponential smoothing model will give you nothing if the data is bad. That’s because they extrapolate and analyze data in order to predict the most likely outcome. So if you only give it half the puzzle pieces to assemble your picture, you’ll have to use your imagination to fill in the gaps it leaves. A good business value and sales forecasting model is one with a low margin of error, or in other words, one that gets as close to the real figures as possible.
Starting a Forecast
There are generally two different method groups in business value and sales forecasting:
Quantitative Methods of Sales Forecasting include:
• Run Rate
• Simple Moving Average
• Historical Growth Rate
• Linear extensions
• Exponential Smoothing
• Complex Multiple Regression analysis with a score or target
Qualitative Methods of Sales Forecasting include:
• Market research reports
• Expert focus groups
• Delphi method
• Consumer surveys
As an operations or field sales manager it’s highly likely you’ll be working with historical operations and sales data, from the previous month, quarter or even year – depending on the type of forecast you wish to produce. If you do not have real-time data then have a plan to get averages, reports, personal interviews along with third-party objective reporting from subjective feedback, emotions or opinions from customers, potential customers and vendors. Later as business value initiatives begin to form data reports become crucial while working with principles and laws of business value.
Initial Analysis – Data Blind?
Again, “Begin with the end in Mind”, is a well-known phrase from Stephen Covey. We do not want a system with blinders that miss the unexpected or unknown from narrow financial questions. We realize that there is more than the numbers in business. Open questions about selling, marketing, service and product development are given with secondary and third-level probs start during the initial online complimentary review and later for strategic planning. Long answers are documented for exploring the many possibilities of potential growth, while later global team discussions about the realities of business value and sales for your concern are held. The constraints often come to play after the initial concept or idea is sold, so, we look long and deep. How many times have you started something then failed? Know before you go.
Contact us for an online complimentary review of your specific situation at this link.