Finance

Long Term Forecasting Methods For Small Business

Long Term Forecasting Methods And Ideas for Small Business:

Though in today’s market it might seem more viable to forecast shorter term, it is becoming more customary for a business of any size to forecast with long-term intentions. Preparing a forecast looking five, 10, or even 20 years into the future has much more merit today for small businesses than ever before.

Basically, forecasting is predicting changes in a business’ sales, profits and expenditures. It is the understanding that though sales and profits hopefully would increase each year, that unfortunately so would expenditures. Realizing this, a business could plan ahead and save for a rainy day, to pay for the increase in rent, insurance and so forth. In an inflationary market, sales typically decrease, but expenditures do not. Planning ahead would help the business owner be prepared for hard times.

Why Look So Far Ahead?

First, psychologically, forecasting long term allows the business owner to start believing that the business will be around for at least that long. It can be encouraging to predict long-term success. Additionally, it is beneficial to predict long-term issues, such as legal or environmental factors. For example, if a small business owner had predicted five years ago that the U.S. and world economy would suffer, he or she could have prepared financially and in terms of staff. If this proactive business owner knew that hard financial times would beset most businesses in 2008, he or she could plan on obtaining cheaper labor, outsourcing, hiring volunteers or interns, and not hiring too much staff with the salary and benefits commitment. Or, this business owner could have tightened the purse strings in terms of expenses or held off on adding new products that require project management and a lot of marketing.

“What If” Strategy

Though many would argue that it was virtually impossible to predict the market’s fall in 2008, small entrepreneurs could argue that it simply does not hurt to plan as far ahead as possible with potential market disasters in mind, using the “what if” strategy that psychologists discourage. In terms of business, predicting the worst does not always create a negative or paranoid scenario. The worse that could happen is that the business owner has extra money lying around, providing the money was not tied up in investments that did poorly as a result of the market crash. In evaluating long term, a business owner could realize that investments should be realigned. Perhaps he or she would not wish to put everything in the stock market and instead, place some extra money in a money market or savings account. Of course, there could be only positive occurrences for a business depending on the market needs for the particular industry. But it is always easier to be surprised by positive occurrences rather than to be unprepared for the negative.

Examine History

As with any business forecasting, long-term forecasting is not always scientific. Market, environmental and other factors fluctuate to varying degrees, sometime plummeting, as in the stock market example above, and with the financial issues of 1982. In forecasting during those times, business owners and government looked at the near future and lost sight of what could happen years ahead. People were excited about President Reagan’s supply-side economic programs and did not consider what was occurring in actuality. Business forecasts from 1982 are among the worst in economic history. Thus, common sense and experience on the part of the business owner are essential, even for the business just starting up. Conferring with other small, more experienced business owners is a good idea, as is consulting with a trusted accountant. Examining history is another smart option.

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