As a CFO, I have a couple questions: Does the small business owner see the value in business forecasting?   Does the small business owner see how the business and cash flow forecast helps you to become proactive rather than reactive?  Do clients realize the answers to their most common questions can be answered with a professional business and cash flow forecast?

I don’t think they do!

Sorry for the rant, but I do not understand why the value of business forecasting is underestimated by the small business owner. Fortune 500 companies are always forecasting and they see tremendous value in it. To these companies, everything is about what is going to happen next and how we can strategize.  Everything is about being proactive because being reactive negatively impacts all segments of the business.  To many small business owners who have viable businesses, the lack of business and cash flow forecasting will reduce the quality of their decisions and the value of their companies.   Do you think these Fortune 500 companies would spend huge amounts of time on forecasting if it was not important, if it did not add tremendous value, and if it did not work?  It is not valuable to the Fortune 500 Company because they are big, it is valuable to the Fortune 500 Company because it is an effective way to operate a business!

Many small business owners  say “Gee, I wish I saw that cash flow problem coming.”  The point is, you’re more likely to identify a cash flow problem in advance with the right business forecasting tools. In addition, you will be able to avoid other problems like inventory problems, because for each level of sales you plug into a forecasting model, you will get an optimum inventory and receipt plan. If sales start to slip or increase, you will be able to adjust to a new receipt and inventory plan.

The proper business forecast is a solid predictor of the future not because the forecast or person doing the forecast is some kind of soothsayer or gypsy lady that has ESP, but because one can enter multiple “what-if” scenarios covering as many different likely possibilities as one would like. With each scenario a strategic plan can be developed.  As these scenarios start to unfold, the business owner can work the strategic plan devised for that unfolding scenario.

One of those scenarios that you want to look at could include something like “what would the financial picture look like if you cut or added an employee, cut or added a location, cut or added a truck, cut or added a product line, leased or bought equipment and what will the impact on cash flow be for anyone of those scenarios.”

And guess what, I also have a solution for those small business owners out there who are only worried about the problems of the day and want to be in reactionary fire drill mode all of the time. For those of you only worried about the problems of today, a business forecast can help identify how to solve those problems that are happening right now.  The proper business and cash flow forecast that prepares monthly projected income statements, balance sheets and cash flows encompass everything that is happening in the business and therefore can solve any problem.  This includes identifying the best course of action and the softest landing for troubled businesses as well.

The bottom line: business owners need to see the value in being proactive, answering questions you ask yourself every day, strategic planning, and for those of you who are just trying to survive one more day, see the value in solving today’s problems today through business and cash flow forecasting.