Budgeting and target settingA big factor in business success is target setting, or simply defining where you want to go and how you’re going to get there. How much do you want to grow revenue in the next 6, 12, and 24 months? What does your customer base look like in each of those periods? Planning ahead gives you much more control over what happens in the business. Use data to decide in advance which activities you’re going to put your limited resources toward and which you’ll limit for the moment. Budgeting is defining in advance what the business is spending and why, the other side of planning. Aside from the occasional Unicorn with unlimited VC money, most businesses operate with limited resources. Rapid revenue growth can also lead to a rapid ramp-up of expenses. Creating a detailed budget gives you more control over those growing expenses and can improve cash flow. Word to the wise: when creating your budget, don’t throw everything in the miscellaneous pile. This makes real transparency in your expenses difficult. Furthermore, when building a budget it’s not necessary to start from zero each year. It can be helpful to use the previous year as a basis and build from there, as long as you’re not simply copying it. Use historical data to look at your spending, and plan to shift resources to the activities that brought the best returns.
Rolling forecastsAn often underutilized business tool, a solid forecast is one of the best things you can do to steer your business. Good forecasting requires you and your financial team to dig deep. But it requires more than simply projecting forward your current trends. Non-financial metrics can be just as important as financial data. How full is your sales pipeline? Are you converting an adequate number of prospects? Which customers drive the biggest profits? Combining this internal data with industry and economic trends can help you see what’s in store for your company. But that’s only part of the process. How does your forecast stack up against your targets and budget? Are you meeting your goals? The greatest benefit of a data-driven forecast is the ability to look at the future and determine which actions you need to take in order to accomplish your mission.
Scenario planningUnfortunately, a lot of business lies outside of our control. Consumer preferences and the overall economic environment can make it impossible to achieve what we set out to do. It’s critical to run through different scenarios and do some contingency planning.
- What happens if one of your marketing campaigns goes viral and you’re swamped with orders? Do you have structures in place to handle a 25% increase in demand?
- On the other hand, what happens if there’s a downturn? Can you flex expenses enough to stave off insolvency? What measures do you need to take if revenue drops by 25%?