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How can you use forecasting to identify risks when expanding a small business internationally?

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Expanding your small business internationally can be a rewarding but risky venture. You need to anticipate and prepare for the potential challenges and uncertainties that may affect your operations, sales, and profits in different markets. One of the tools that can help you do that is forecasting. Forecasting is the process of using historical data, market research, and assumptions to estimate future outcomes and trends. In this article, you will learn how to use forecasting to identify risks when expanding a small business internationally, and how to mitigate them with effective strategies.

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Tonapi, Kedar

Finance Head India at Valspar
Craig Alexander Rattray

Saviour to Stressed & Cash Poor Business Owners | Know Your Numbers Podcast Host | Simplifying Finance– Making Numbers…

1 Why forecast?

Forecasting can help you make informed decisions and plans for your international expansion. You can use it to identify the demand and potential for your products or services in different countries and regions, and adjust your pricing, marketing, and distribution accordingly. It is also useful for assessing the costs and benefits of entering new markets, as well as evaluating the impact of external factors on your financial performance and cash flow. Additionally, forecasting can help you anticipate and prepare for possible scenarios and contingencies, such as supply chain disruptions, customer complaints, or legal disputes. Lastly, it can help you set realistic goals and targets, and monitor your progress against them.

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Tonapi, Kedar

Finance Head India at Valspar
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It is the forecasting that lets you plan ahead in the short range, especially the immediate funds and inputs planning or else you could be fire fighting. The lead time planning in case of international business can be a big differentiator with your customers. You do not want to be seen as a last minute planner. International business is a business of discipline and Forecasting is one such discipline tool.

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Craig Alexander Rattray

Saviour to Stressed & Cash Poor Business Owners | Know Your Numbers Podcast Host | Simplifying Finance– Making Numbers Easy | Make Smarter Decisions & Drive Growth | Download “Get Paid On Time, Every Time” guide below ??
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Forecasting is vital for all businesses-domestic or expanding internationally. Many business owners are scared of forecasting as it is new and none of us know the future. A forecast is basically a series of assumptions-assumptions re income, costs & cash flows. Without a forecast we are running blind. How can we possibly determine the cash/working capital requirements without a forecast? How can we determine where we are going? We must use our experience of the business and what is happening, contracts, order books, as well as what has happened previously-if we can understand where we are and where we have been, we have a much better chance of determining where we are going. How do you run a business without a forecast? In my view, badly.

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2 How to forecast?

Forecasting is a method of making educated guesses based on the best available information and assumptions. It can involve different types of methods, such as qualitative, quantitative, or mixed, depending on the purpose. When forecasting, one must define the scope and objective of the forecast, collect and analyze relevant data, choose and apply a forecasting technique, make and document the forecasts, and review and update them. Additionally, one must consider the advantages and disadvantages of different techniques, such as trend analysis or regression analysis. Finally, it is important to measure and improve the accuracy of forecasts by communicating them clearly and revising them with new information.

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Craig Alexander Rattray

Saviour to Stressed & Cash Poor Business Owners | Know Your Numbers Podcast Host | Simplifying Finance– Making Numbers Easy | Make Smarter Decisions & Drive Growth | Download “Get Paid On Time, Every Time” guide below ??
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I see it much more simply than that. If we understand where we are and where we have been we have our starting point. That is vital for a forecast as if we have the wrong starting point our forecast will be wrong. Costs are always easiest to forecast as they are usually within our control-we know what staff we have, our rent, rates, insurance etc and we know when they are paid. Similarly with taxes. Income is more difficult as that is usually outwith our control unless we have contracts, orders and recurirng revenue. In order to forecast we must use assumptions based on what has happened before and based on where we are now. Yes, I agree that there must be educated guesses, but these should be based on the assumptions that we have created.

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3 What are the risks?

Forecasting can help you identify risks, but it cannot eliminate them. Risks are the uncertainties and events that may affect your international expansion negatively or positively, such as market risk, operational risk, financial risk, legal risk, and political and social risk. For example, market risk could mean facing lower demand, higher competition, or changing preferences in your target markets. You may need to adapt your products or services, pricing, or marketing strategies to meet the needs and expectations of customers. Operational risk could mean difficulties or disruptions in production, delivery, or service processes. Financial risk could mean losing money or facing cash flow problems due to currency fluctuations, inflation, interest rates, taxes, or fees. Legal risk could involve encountering legal or regulatory obstacles or disputes in your target markets. Political and social risk could involve being affected by political or social instability, violence, or unrest in your target markets. Thus, it is important to monitor the situation closely and prepare for contingency plans or exit strategies.

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4 How to mitigate the risks?

Mitigating the risks means reducing their likelihood or impact, or transferring them to someone else. To do this, conducting thorough and ongoing market research and analysis is necessary to understand the characteristics, trends, opportunities, and threats of your target markets. Additionally, diversifying your markets and products is a must to avoid relying on one or a few markets or products. Building strong and reliable relationships with partners, suppliers, distributors, customers, and stakeholders is also important to leverage their expertise, resources, and networks. Implementing risk management policies and procedures is also essential to identify and assess risks, develop and execute risk management plans, actions, and controls, and monitor and evaluate their effectiveness. Lastly, seeking professional advice and support can provide valuable insights, guidance, or assistance in your international expansion.

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5 What are the benefits?

Forecasting and mitigating the risks of international expansion can help your small business reap the benefits of increased sales and profits, enhanced reputation and brand awareness, expanded knowledge and innovation, and greater flexibility and resilience. You can access new and larger markets, improve your image among customers, competitors, and industry, learn from different cultures, practices, and technologies, adapt to changing conditions and demands, and overcome challenges. Forecasting can help you identify and mitigate the risks involved in international expansion to make informed decisions and plans for your success.

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Craig Alexander Rattray

Saviour to Stressed & Cash Poor Business Owners | Know Your Numbers Podcast Host | Simplifying Finance– Making Numbers Easy | Make Smarter Decisions & Drive Growth | Download “Get Paid On Time, Every Time” guide below ??
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Forecasting provides a road map for the business. We set the direction based on where we are now, where we have been and most importantly where we are going. This gives direction and the funding required for that journey. Without it we run blind and are guessing with respect to funding. We need to monitor the forecast and report against it, understanding the differences (or variances) and why they have happened, and more imnportantly what do we need to change going forward as a result of these variances. Have we done something wrong? Did our customer change things? Were our assumptions wrong? Has the world or market changed? If we can understand this then we can modify our assumptions and update the forecast. Simple.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Craig Alexander Rattray

Saviour to Stressed & Cash Poor Business Owners | Know Your Numbers Podcast Host | Simplifying Finance– Making Numbers Easy | Make Smarter Decisions & Drive Growth | Download “Get Paid On Time, Every Time” guide below ??
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Forecasting is the key to success in any business. If you understand where you are, where you have been and where you are going then you have a map for your business. You'll also be able to secure the right funding by sharing this and engaging with the right funders. Don't run away from forecasting as it is reasonably simple and will make a huge difference to your business.

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How can you use forecasting to identify risks when expanding a small business internationally?

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4

5

6

1 Why forecast?

2 How to forecast?

3 What are the risks?

4 How to mitigate the risks?

5 What are the benefits?

6 Here’s what else to consider

Small Business

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How can you use forecasting to identify risks when expanding a small business internationally?

1

2

3

4

5

6

1 Why forecast?

2 How to forecast?

3 What are the risks?

4 How to mitigate the risks?

5 What are the benefits?

6 Here’s what else to consider

Small Business

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