As one of my early manager/mentors used to say, “Trying to run a business without good numbers is like playing night baseball with the lights turned off.” How exciting and meaningful would it be to watch your favorite football or basketball team without keeping track of the score?
Well, it’s the same way in business. In order to take your business to the next level, you need to know 3 basic things: Where you’ve been, where you are, and where you’re going (your company’s “vision”). The written goals and objectives you’ve included in your Strategic Plan describe your vision in words (the “what”). Your revenue forecast describes that vision in numbers (the “how”).
I encourage (some would say, demand) that my clients prepare the following spreadsheet model during the early stages of our Growth Initiative:
- Prior 3 years’ annual revenue, by the customer and by product (both units & dollars)
- Current year actual revenue by month, plus forecast by month through year-end
- Forecasted revenue by month for the following year, and then by quarter for the next 2 years.
This is essentially your company’s story, expressed in numbers. By tracing the flow of revenue, your can very clearly see where you’ve been, where you are today, and where you plan to go tomorrow.
Like any planning tool, a forecast is a process, not an event. In order to be useful and effective, it must be reviewed and challenged by you and your managers on a regular basis (I recommend monthly meetings to review both the annual revenue forecast and expense budget).