Forecasting and business planning

Tuesday 6 December, 2011

By Kelvin Goodson - kelvin@consumerchoices.co.uk

Forecasting and business planning are an “essential” part of managing and starting up a business, according to Business Link, the government's online resource for businesses.

Forecasting is exactly that - predicting what you think is going to affect your business in the future - both in the short-term and long-term - with the aim of being able to identify problems and opportunities and then aBusinessct on them.

The Lloyds TSB guide to business forecasting states that forecasts should be conducted as you set up your business to assist you in seeking finance and working out how much your business will earn.

Business Link defines a business plan as “a written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts”.

The idea of business planning is to sketch out how the business will begin, where you want the business to get to and what needs to be done to make the plan feasible.

According to HSBC’s Knowledge Centre, a business plan will also be required by any bank or other lender before they will offer you credit, loans or overdrafts to help get your business off the ground.

Forecasting and business planning tips

While forecasting and business planning can seem like intimidating tasks, the trick is not to get bogged down in detail - after all, both should give you and others a clear idea of what your business is and where it is headed.

Allow Businesschoices.co.uk to get you started with ten forecasting and business planning tips:

1. Customer research - Or, in simpler terms, where are you going to make your money from? As Lloyds TSB put it, “it all comes down to persuading a customer to give you money - and to go on doing so” so you need to know as much about your customers - both existing and potential - as possible.

This information can be obtained through existing customer records, asking customers directly and looking at the customer base of competitors and similar businesses. The likes of Business Link or your local chamber of commerce may also be able to point you in the right direction.

2. Know your market - Or again, in simpler terms, who is competing for the money you want to make? Whether forecasting or business planning you need to know who your competitors are, what the demand is for your product or service, how your product or service fits into its market and what the current economic conditions in that market are.

According to Business Link, knowing your market allows you to target customers, sell effectively, compete with those offering a similar product or service, identify new opportunities and plan your marketing.

3. Beware of market changes - Of course, there is no point in knowing your market if you don’t keep an eye on it, because this will prevent your business from being able to react to a change in circumstances, be it positive or negative, thus rendering your forecasting and business planning ineffective.

The Institute of Chartered Accountants in England and Wales advises business owners to “keep your ear to the ground to see what trends you can exploit” by speaking to customers, keeping abreast of industry news and networking with peers, allowing you to react to changing customer needs.

4. Marketing - And, of course, there is no point in doing your customer research, knowing your market and keeping an eye on the latest trends in that market if nobody knows that you have a product or service for sale.

A business plan should detail “how you market your product - its market position, pricing, promotion, and distribution channels,” according to HSBC, so basically, how you are going to sell whatever it is your business is offering.

5. Factor in how long things will take to get completed - Or to use the swanky term, project management. A “project” is defined as “a temporary piece of work which falls outside 'business as usual' day-to-day operations” by Business Link.

It is fair to say that a lot of what needs to be done in order to set up a business falls into that category, and so it is important to manage these “projects” to ensure that you know when they will be completed and how much they will cost.

6. Make a budget - It’s an obvious point to make, but since your business is intended to make you, not break you, making and managing a budget is a crucial part of getting your business off the ground.

While this can seem like an arduous prospect, Business Link says that this need not be the case in practice - “you simply have to work out what you are likely to earn and spend in the budget period”.

Mel Kenny, the business planning adviser at professional advice website unbiased.co.uk, encourages business planners to be both honest and flexible with their budgets to avoid having to ask lenders for a bigger than agreed amount and thus sending out “the wrong signals”.

7. Keeping costs down - Again, it’s an obvious point to make, but it is important to keep track of your business overheads and to try and reduce them where possible.

This is easier said than done at a time when compliance and energy costs are rising, but regularly reviewing overheads can keep a business going when times are hard and increase profitability when things are rosier.

One way of doing this is to get the best deal possible on regular business overheads like utilities. The likes of broadband, energy, and phone costs can all be kept to a minimum by shopping around, and Businesschoices.co.uk has a range of guides that will show you how.

8. You and your team - With all the external influences that play a part in forecasting and business planning, it can be easy to overlook possibly the most important part of the business - the management and employees.

HSBC recommends that your business plan sets out “the structure and key skills” of your companies staff. Why? Well, as Business Link puts it, “your investors will also want to be convinced that you and your team are fully committed”.

9. Feasibility - To ensure that the decisions you make through your forecasting can actually go ahead, a study needs to be carried out to ascertain how practical that decision is, both on a financial and non-financial basis.

Lloyds TSB recommends that such a study looks at resources and capacity (how much more business and customers you can handle) and financial feasibility (the cost of the change and the rewards of the change).

10. Exit strategy - Obviously, thinking about how you’ll go about leaving your business while you’re in the process of setting it up is not the first thing that springs to mind, but Lloyds TSB warns that, while this isn’t essential, it will demonstrate “the thoroughness of your planning”.

Such a strategy should take into account why you would be leaving the business - for retirement or because you believe you have taken it as far as you can - and what state you would look to leave it in - whether you would be looking to sell up, name a successor and so on.