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Seven Forecasting Tips for Uncertain Times

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One of the most common questions clients have asked us lately is how to prepare a financial forecast for their business during uncertain economic times.  Stated another way: how do you put together a budget that is both useful for your company’s operations, while maintaining credibility with your advisors, lenders, and potential partners.  While every situation is different, we offer these suggestions to help frame your 2020 forecast.

  1. Scenario Planning: Consider scenario planning under multiple assumptions. As you determine what the “new normal” will look like, develop a base case that is achievable under almost any circumstance (think 95% of the time).  Additional cases can layer in the upside from potential new customers, products or projects, and can be used as incentive targets for employees.
  2. Learn from History: Review how your business fared during the last recession. We’re not saying that this recovery will be the same as the last recovery, but it’s useful to review trends in revenue, margins and earnings for 2008 – 2010.  An added benefit: many lenders and partners may want to review this information, so you’ll already be prepared for their requests.
  3. Check your Sector: Look at how your company’s sector might impact its speed of recovery. In past recessions, did your industry lead, lag or remain in line with the market’s recovery?  While past performance isn’t a guarantee, it can help inform your view on 2020.
  4. Get your Customer Views: Now, more than ever, is the time to keep communications with customers open. Your company will be a trusted resource, and you will be more aware of both upsides (e.g. new orders) and downsides (order delays) with your customers.
  5. Track and Capture Key Data: If you use a CRM or an ERP system, remember to export and save your backlog and pipeline reports on a monthly basis. Showing how backlog and pipeline levels at the beginning of Q1 related to actual Q1 sales can help substantiate your sales forecast later in the year.
  6. Build a “Bridge”: Prepare a bridge that shows how your 2020 forecast builds on your 2019 results. Having a clear sense of what is driving your business’ growth will allow you to better incentivize your salesforce and will make it easier to discuss the forecast with a wider audience.
  7. Think “Offense” as well as “Defense”: Be prepared to discuss how additional capital could accelerate your company’s growth. If a potential partner asked you what you would do with $10 million, you should have a specific response that includes how this investment would impact your company’s growth (both in terms of dollars and timing).

Every business and every situation is different, but devoting time and attention to the forecasting process can help provide a solid roadmap for navigating uncertain periods.

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Betsy Richards is a Senior Associate with Mirus Capital Advisors.  She works with owners of middle market businesses and can be reached at richards@merger.com.