Forecasting in your business is very similar to artificial intelligence, AI.
You see, for artificial intelligence to become smarter, it requires the user to use it more. Take, for example, your iPhone. If you use Siri regularly, then what happens over time is Siri learns from your voice inflection, it learns from the recordings it keeps of your voice, and over time it becomes smarter. Smarter because of the analysis it’s doing of your voice and the like.
Forecasting in your business, doing your P&L and your cash flow forecasts is the same. When you sit down to do your budgets and your forecasts, you’re sitting down often with historical data and you’re making a set of assumptions on where you’re going to move into the future.
Where so many forecasts go wrong is that people don’t come back and review those assumptions and challenge those assumptions and refine those assumptions over time.
We recommend that you do it every month.
You should be looking at your budget to actual and challenging your assumptions that you’ve made, and then refining them moving forward.
Now, I’m not saying you should be changing your goals every month. What I’m saying is you need to refine the assumptions that you’re making in your forecasting so that you can become more intelligent over time and predict with a higher probability of success, versus putting your finger in the air and seeing which way the wind’s blowing.
I know this sounds really, really simple, however, it’s one of those areas that is often neglected. What happens is we say budgeting or forecasting doesn’t work for my business, which is untrue.
It’s about understanding the assumptions you’re making, challenging those assumptions on a monthly basis, and refining them over time.