What Do You Do with Your Forecast Now That You Have One?
YOU NOW HAVE the best tool available for managing your busi-ness, controlling expenses, and getting a view of the cash requirements that lie ahead. You now have some idea of how much cash you will need and when you will need it.
Here is what you need to do. On a monthly basis, compare the operations of your company with the forecast on a line-by-line basis.
As you make your monthly review, you will be able to locate dif-ferences between what you thought would happen and what actually did happen. This helps enormously. Now you can avoid being a crisis manager; you can confine your management activities to the exceptions, items that are significantly different from what you forecasted.
In my accounting firm, there was an extended period when our office supplies (a large expense in a professional office) never came within our forecast. I made numerous inquiries, and of course the adminisÂtrator always had some plausible explanation. Even so, we consistently overshot the forecast for office supplies.
After continued frustration, I suggested we check other sources for our supplies. You guessed it. Our friendly vendor whom we used for years was 20 to 30 percent higher than his competitor. Now the expense is under control. That's what this process is all about keeping expenses under control.
When you're not hitting your target, shake your head in bewilderment. Ask questions, and then keep on asking until you get the answers you need to keep within the framework you've provided in your forecast.
WHAT IF THE FORECAST IS WRONG?
Unlike a stagnant budget, change it! A forecast is a living document which changes as conditions change. We use the forecast to establish achievable and realistic goals. We must use the forecast to see the financial implications of the decisions made. We use the forecast to tell us what our cash requirements will be in the coming months. It is not for playing games by establishing ideals that make no sense in the real world. It's a document predicting your financial future,
After you have reviewed particular items for a number of months, and have taken corrective action and are still consistently over or under the forecast, correct the forecast. But remember this: A forecast should be changed only after you have exhausted all remedies to bring your actual expenses or income in line with your original estimates.
Changing the forecast will provide a meaningful analysis of where you are headed. It is the only tool available that will provide a reasonable prediction of what is going to take place in the future. It is powerful.
ARE YOU SATISFIED?
One of the most important items in the preparation of your forecast is your compensation and the profit you have allowed or forecasted for your company. Make certain that the salary you have established for yourself and the profits are adequate. It makes no sense to work for peanuts. Making a reasonable salary and a reasonable profit is why you're in business.
If your salary and profit do not meet your expectations, you must give thought to whether your goals are realistic or not. A forecast must be based on an honest assessment of what you think you can achieve in the coming period. Take whatever action is necessary to achieve your desired objectives. Success or failure is your responsibility.
Controlling expenses means you must design meaningful finanÂcial statements, compare actual results against anticipated costs, manage the exception rather than the rule, and ask appropriate questions to get sufficient information to make your business decisions. If you do so you will be in a better position to:
YOU NOW HAVE the best tool available for managing your busi-ness, controlling expenses, and getting a view of the cash requirements that lie ahead. You now have some idea of how much cash you will need and when you will need it.
Here is what you need to do. On a monthly basis, compare the operations of your company with the forecast on a line-by-line basis.
As you make your monthly review, you will be able to locate dif-ferences between what you thought would happen and what actually did happen. This helps enormously. Now you can avoid being a crisis manager; you can confine your management activities to the exceptions, items that are significantly different from what you forecasted.
In my accounting firm, there was an extended period when our office supplies (a large expense in a professional office) never came within our forecast. I made numerous inquiries, and of course the adminisÂtrator always had some plausible explanation. Even so, we consistently overshot the forecast for office supplies.
After continued frustration, I suggested we check other sources for our supplies. You guessed it. Our friendly vendor whom we used for years was 20 to 30 percent higher than his competitor. Now the expense is under control. That's what this process is all about keeping expenses under control.
When you're not hitting your target, shake your head in bewilderment. Ask questions, and then keep on asking until you get the answers you need to keep within the framework you've provided in your forecast.
WHAT IF THE FORECAST IS WRONG?
Unlike a stagnant budget, change it! A forecast is a living document which changes as conditions change. We use the forecast to establish achievable and realistic goals. We must use the forecast to see the financial implications of the decisions made. We use the forecast to tell us what our cash requirements will be in the coming months. It is not for playing games by establishing ideals that make no sense in the real world. It's a document predicting your financial future,
After you have reviewed particular items for a number of months, and have taken corrective action and are still consistently over or under the forecast, correct the forecast. But remember this: A forecast should be changed only after you have exhausted all remedies to bring your actual expenses or income in line with your original estimates.
Changing the forecast will provide a meaningful analysis of where you are headed. It is the only tool available that will provide a reasonable prediction of what is going to take place in the future. It is powerful.
ARE YOU SATISFIED?
One of the most important items in the preparation of your forecast is your compensation and the profit you have allowed or forecasted for your company. Make certain that the salary you have established for yourself and the profits are adequate. It makes no sense to work for peanuts. Making a reasonable salary and a reasonable profit is why you're in business.
If your salary and profit do not meet your expectations, you must give thought to whether your goals are realistic or not. A forecast must be based on an honest assessment of what you think you can achieve in the coming period. Take whatever action is necessary to achieve your desired objectives. Success or failure is your responsibility.
Controlling expenses means you must design meaningful finanÂcial statements, compare actual results against anticipated costs, manage the exception rather than the rule, and ask appropriate questions to get sufficient information to make your business decisions. If you do so you will be in a better position to:
- evaluate business activities
- decide where to cut costs
- monitor your financial successes
- understand the nature of your operation and the consequences of your decisions
- be in a better position to react to economic conditions quickly
- become a better manager
- stop making scared money decisions
- make more money