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Polishing your crystal ball

Making business forecasts for fun and profit 4/5 SOHO Synapses hed: Polishing your crystal ball dek: Making business forecasts for fun and profit By Joe Farace

The best way to predict the future is to invent it.
-Alan Kay

Many SOHOers think that preparing a business forecast is difficult. They’re not economists, they claim, but specialists in products and services their clients need. But forecasting doesn’t have to be hard. If Alan Greenspan doesn’t know what’s going to happen next to the economy, how can you expect to nail it down perfectly?

One of the major advantages of creating a business forecast is that it forces you to analyze the cost of doing business and helps you set goals–all at the same time. Good record keeping reveals the incremental costs of accomplishing these projected objectives. For example, do you know the cost of sales for each of your product lines? Even if you’re a service-based business, you have distinct lines and need to know what they cost to provide.

One school photographer I know keeps detailed spreadsheets of his preschool assignments. He knows exactly the average number of film frames exposed for each child; what payment envelopes and combs cost per each school; and what gross profit he can expect for each child enrolled in the school. He uses a Microsoft Excel spreadsheet to post data from each photo session, and over the years he has built up a useful data history that helps him predict the future.

By keeping track of the average sale and number of sales over a year or two, you’ll soon get a handle on forecasted demand. If you’re brand new and don’t have any records, build your forecast on what you would like to make during that time period. Then multiply that by the number of sales you expect. The flip side of forecasting next year’s or even next month’s business is that it helps you plan for the necessary resources–including people–so that they’re available to meet expected demand.

Once you know what things cost, you’re ready to prepare a forecast. One of the easiest ways to do this is to base it on your average sales. Use your favorite spreadsheet program to prepare a forecast of both income and expenses on a month-by-month basis by product line. You may have already noticed some trends, so be sure to include expected seasonable variables. One SOHOer told me one of his product lines “tracks the Dow-Jones index, and like the stock market, this segment has occasionally been unstable.” (No kidding.)

Those of you interested in producing the most accurate possible forecast might consider using a specialized data-analysis and graphic application, such as Synergy’s KaleidaGraph. While aimed at scientific users, technically-inclined SOHOers will find it a useful tool. Some SOHO operations may prefer a business-oriented approach to forecasting, and might prefer software such as Adaytum’s ePlanning.

Most of us aren’t mathematicians, but preparing forecasts is easier than you think. You take your best guess (that’s all any forecast is) at what you expect or would like to gross by each month by product line. It’s OK if you guess wrong. Remember: No matter how bad your first business forecast may be, it’ll be a lot more accurate that the forecast for Friday’s weather.

Contributing Editor Joe Farace has published dozens of books drawing on his experience as a SOHO photographer and graphics artist.

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