Beware of the smiling banker requesting a forecast - its a trap!
Well perhaps its not intended to be a trap, but by jingos it could be if you get it wrong. Tell the bank you're going to do $100,000 sales and you only do $80,000 then you look bad. The fact that you only did $70,000 the year before is forgotten. You predicted $100,000 and you didn't achieve it, hence you have put into doubt confidence in your grip on your clients, your market, your product and your finances. The same can be said if you predict $80,000 and you achieve $100,000, but your banker are less worried here because at least you can pay your debts!
But forecast concerns don't just stop at your ability to predict demand for your product and your ability to contain enthusiasm for spending money. Your forecast also needs to give a realistic picture of your cash flow, and this is driven by balance sheet as much as profit and loss. Its all well and good predicting profitable trade but if your debtors and inventory blow out, then your skills as an operational and financial manager are again put into question.
Pearl Financial Services have just released a checklist (click here) that businesses can refer to when preparing their forecast. This checklist is designed to help you consider all the aspects of the forecast hat a bank will be looking at and will go a long way to keeping the bank happy. It might even save you the trauma of submitting a poor forecast, and the hundreds of hours spend curtailing to the bank that ensue as you start to miss targets!
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