Forecasting Techniques to Drive Business Growth: Simple Steps for Success

 

Written by: Tracy Niemier, EA

As a small business owner, looking ahead and planning for the future can feel overwhelming, especially when there are so many day-to-day challenges. But with the right forecasting tools, predicting what’s next for your business doesn’t have to be complicated. Forecasting can help you plan for growth, manage expenses, and make smarter decisions based on where your business is headed.

So, what exactly is forecasting? At its core, it’s about using information from the past and present to make educated guesses about the future. Whether you’re deciding how much inventory to buy, when to hire new staff, or how to handle cash flow, forecasting is the tool that can help you make those calls with confidence.

Here’s a simple guide to some basic forecasting techniques and how to use them to keep your business on track.

1. Start with What You Know (Historical Data)

The easiest way to start forecasting is by looking at what’s already happened in your business. By analyzing past sales, expenses, and seasonal trends, you can see patterns that will help you make future predictions. For example:

• • If you run a retail store and see a spike in sales every December, you can plan for increased stock and staff next year.
  • If cash flow tends to dip in the summer, you might set aside extra savings to cover those lean months.

This kind of forecasting is often called time series forecasting. It involves looking at trends over time and using those to make predictions.

2. Keep It Simple with Moving Averages

A great way to smooth out fluctuations in your data is by using something called a moving average. This method takes the average of a few recent periods (say, the last three months) to give you a clearer picture of your trend.

Here’s how it works: instead of reacting to every little up or down in your sales, you focus on the average over time, which helps you avoid panic over short-term dips and plan for long-term growth.

For example, if your sales have fluctuated over the last six months, calculating the moving average can help smooth those peaks and valleys so you have a clearer idea of where your business is actually headed.

3. Ask for Expert Opinions (Qualitative Forecasting)

Sometimes, you don’t have enough historical data to make accurate predictions—especially if you’re launching a new product or entering a new market. This is where qualitative forecasting comes in. Essentially, it means leaning on the expertise of others—whether it’s your employees, industry experts, or even customer surveys—to get a better idea of what’s coming.

This method isn’t about crunching numbers. It’s more about gathering wisdom from people who understand your industry and can offer informed opinions. For example, if you’re opening a second location, you might talk to other business owners who’ve done something similar to understand the challenges and opportunities ahead.

4. Plan for the “What Ifs” (Scenario Planning)

Scenario planning is about imagining different futures for your business and planning for each one. It’s like playing out different “what if” situations and thinking about how to handle them. What if the economy slows down? What if your biggest supplier goes out of business? By thinking through these possibilities, you can prepare for them before they happen.

For example, let’s say your business relies on one major client. A scenario plan could explore what might happen if that client left. Would you have enough cash reserves to cover the gap? Could you expand your marketing efforts to attract new clients in a pinch? Thinking ahead like this helps you stay flexible and ready for the future.

5. Combine Techniques for a Full Picture

The best forecasts often come from using more than one technique. For instance, combining time series forecasting with qualitative methods can give you a more rounded view of your business’s future. While the numbers can give you solid data, expert opinions, and scenario planning provide the context and insight that numbers can’t always offer.

Why Forecasting Matters

Incorporating these forecasting techniques into your business planning helps you make decisions from a place of confidence rather than guesswork. When you know where your business is headed, you can plan for things like:

• • Managing cash flow during slow periods
  • Scheduling staff when you know things will get busy
  • Timing large investments like new equipment or a new location

While forecasting can’t predict the future perfectly, it’s a tool that keeps you one step ahead. The more you do it, the better you’ll get at spotting trends and responding to changes in your business.

Call Your CPA for Guidance

Forecasting might initially seem intimidating, but you don’t have to tackle it alone. A CPA or financial advisor can help you analyze your data, choose the right forecasting techniques, and ensure your numbers add up. They can also guide you in making smarter financial decisions based on the information you gather. So, whether you’re just starting out or looking to grow, reach out to a CPA for advice on how to use forecasting to your advantage.