As I see it, Business Forecasting is finding the right number of what-if scenarios in order to identify enough possibilities of what is going to happen. A lot of business owners think that forecasting is like being a soothsayer in that business forecasting identifies exactly what is going to happen. No one can predict the future and there are too many different things that could happen to a business that will throw off the most sophisticated of forecasts. 

This is where the Chief Financial Officer comes into play.  The CFO should identify the top seven likely scenarios and do a what-if analysis on those seven scenarios. One of these scenarios should be a best case and a worse case. The proper forecasting tool to use is one that has a Profit and Loss, a balance sheet, cash flow, inventory plan and sales forecast all in one. These schedules can be broken down by quarter, month or even by week. Of course, it needs to be adaptable to retail, manufacturing, distribution or service depending on the type of business the CFO is forecasting. The model also needs to identify where the risks and opportunities are and incorporate the key metrics. The great thing about this model is that as one number changes anywhere in the model, all the numbers adjust. 

I use this forecasting model all the time with my clients and it makes a huge difference. It shows the business owner all of the risks and opportunities associated with any scenario.  Most importantly, the model allows for more thorough decision making and a reduction of risk for the business owner.