I am working on rolling forecasts, a good way to replace your annual budget process and position your business for future growth. Rolling forecasts are not new. Rolling forecasts have been in use for some time, and successful organizations regularly undertake these exercises.
As a small or mid-size business, rolling forecasts can give you real power to control your financial future. The concept is simple and involves setting targets for where you want to achieve your profit, say, within five years. Your profit level could be $5 million or $ 500,000. Either way, set the target.
Next, make a plan. However, instead of setting a one-year plan and going through the exercise of sticking to it, you will employ a strategy that involves real-time business operations. The plan will be set up by quarters, so you will be setting up the first five quarters, or the next 15 months.
Now, instead of drilling down into your financial expenses, set the primary levels of production and inventory expenses, sales and marketing expenses, and administrative costs.
Have patience and wait until the end of the first quarter. How did you do? Where did you fall short? Is there a product that needs more marketing? Or are the costs too high to make the product profitable? Are you paying too much?
After the first quarter is complete, decide how you will achieve your sales and profit again for the next 15 months. Redo the second through fifth quarter of your original rolling forecast, adding a 'new' fifth quarter. In the process of the rolling forecast, the second becomes the first, and the remaining "roll forward".
After you do this for a few quarters, you will see where your business is headed and decide where you want it to go.
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