I know many people who feel like Brad when numbers pop up in meetings.
Whether your name is on the P&L in bright shining lights, or you’re loosely connected to it within the orbit of your role, all business roads lead to one ultimate destination - how much money are we going to make this year?
You don’t need to be a financial whizz to get a grip on forecasting.
Understanding a few concepts and having them in your career armory can take you a long way.
WINK - A Forecast Is Not A Budget.
A forecast is an expression of the future financial weather of your business. It’s used to communicate what storms or sunny days are ahead of you - and why.
A budget is what you said the weather would be like before you could even predict how it would change. Budgets usually get eaten by the weather around Q2.
NUDGE - Use Ranges.
A common misunderstanding when forecasting is that you have to start with one number in mind. You may end up with one number in a final spreadsheet, but using ranges to arrive there is a powerful and effective way to manage expectations:
LOW: things don’t go as planned. The market forces you’ve all discussed bite you in the butt. This is the shit happens scenario. Every business needs to know this.
MID: things go pretty much as you’d like them to. This is the 50/50 scenario. This means, in your best estimate, there’s a 50% chance of exceeding it and a 50% chance of missing it. The Jolt recommends 50/50 forecasting.
HIGH: you hit the jackpot. This is the scenario where everything connects. But it’s rare that everything connects.
The point is, nobody can predict a forecast with 100% accuracy. Even if you’re not connected to a P&L, looking at your world through the scenario of ranges is a very effective way of planning & communicating numbers.
JOLT - Know Your Numbers!
We’ve said it before and we’ll say it again - knowing the major financial constructs of your business is essential for anyone who wants career growth.
If you have P&L responsibility, it’s still easy to lose sight of what’s really happening. People don’t like to talk about the thunderstorms ahead. Take this Jolt as a reminder to check the weather report from your team on a regular basis. We know lots of senior folks who still get caught by this.
If you don’t have P&L responsibility, a good start is simply to know -
a) what is the budget for the year?
b) where is the current forecast?
c) why?
This will quickly take you to the heart of the challenges and opportunities of your business, and I guarantee you, this is exactly what the C Suite will also be looking at.
Try asking your CFO.
Yours financially,
Love The Jolt.