Live or Die Forecasting

Picture the scene. It’s November 2019 and you’re planning on finalising your big ideas for your business in 2020. 

You produce a sales target, and maybe think about the big costs you’ll have too. You sign it off with your key stakeholders – or for smaller companies – you step back and marvel at a job well done.

You don’t need this article to tell you the carnage that unfolded in 2020, and how even your best-laid plans were probably thrown out the window. 

Times have changed, and right now, plans and forecasts no longer need to look a year, three years or five years ahead. The focus has switched to 1 month, 3 months or 6 months.

These short-term forecasts, termed “live or die forecasts” are so crucial for businesses in such a fast-changing landscape. They allow you to see what cash you have now, what cash you need to spend in the short term, and then what cash you have left to survive. 

If you have salaried staff or other committed payments you have to make then you need to ensure you have the cash when they fall due or you’re going to run into big problems. 

Knowing your cash flow also allows you to make business-critical decisions in real-time. 

For example, do you need to furlough your staff? Defer your VAT? Top up your bounceback loan? Live or die isn’t hyperbole, getting this wrong could finish your business.

Live or die forecasting is therefore very important as we navigate what we all hope is the end of the pandemic and recovery. Bringing staff back from furlough and scaling up your trading activity to previous levels will both put a strain on your cash, so even as we move back to normal, these forecasts will be important in showing you what you can and can’t afford.

Due to their nature, these forecasts fall out of date quickly, so they’re something you will have to do, and do again. They take time, especially as you need to get them right. But they could literally be the difference between your business still being here in a few months or not – so stick at it. 

So how can you take your short-term forecasting to the next level?

● Keep your records up to date!
If you have up to date cash, debtor and creditor records, you have a very good start point for your short term cash flow. If you are operating on old data, you aren’t putting yourself in the best position and you may count receipts you’ve already had or miss payments that are still due.

● Be realistic!
Budgeting can sometimes be used to provide targets and direction for an organisation. Short-term forecasting is not for this. If you’re only averaging £10,000 of sales a month in the pandemic, put this in your forecast. Yes, push for a 10% improvement if you think that’s what you can do, but you should not be – quite literally – banking on it!

● Prioritise your payments!
No matter how much someone may love their job and their company, not many people can afford to work for free. Salary is probably your number one payment priority if you have staff. However, if you don’t plan and prioritise your payments, you may run out of cash by month-end. If your net salary bill is going to be £15k at the end of the month, then you need to prioritise £15k for this bill. Then work out what else you can afford in priority order.

● Use software!
It can be bespoke forecasting software or just good old excel if you prefer. You may have been doing these calculations in your head, but setting up a template that you can roll forward each week will help save time and allow you to forecast accurately. You’ll be amazed how much clarity seeing a business plan or a budget properly written down gives you. It also gives you something to track against, meaning you can hold yourself accountable or investigate when things don’t look right.

● Iterate and improve!
You’re on a weekly forecasting cycle. On Monday, you predict by next Monday your bank balance will be £32k. It’s £28k. Don’t just start your forecast again at £28k! Why is it £28k? What did you get wrong? Is it just a customer who has paid late? Get chasing! Did you pay something that wasn’t in your forecast? Uh oh. Was that a one-off or is this something you need to add to the forecast for future weeks? By the time this pandemic is over, you should be a forecasting pro!

Don’t give up, this stuff isn’t fun for everyone, but it’s important. And if you haven’t thought about doing this yet, just start. Write the numbers down and get planning. That way you can be constantly improving and thinking ahead, rather than just getting by.

It’s been a tough time for all businesses out there, and you’ve done great for getting this far through the pandemic. But there is still a way to go and a recovery to manage, so give yourself the best chance of success. The end is in sight, and we will get through this. 

To your success,
Rene
www.ledgrr.co.uk