Las Cabras’s Approach to Successful Forecasting

That time of year has come—planning for the next 365 days ahead. For businesses, budgeting and projecting become even more critical as recovery signals from the market suggest potential growth and new capital investment opportunities. With more organizations looking to expand and invest in long-term strategies, let’s dive into one of the key dynamics of smart mergers and acquisitions—Forecasting.?

Why Forecasting is Important for a Successful M&A

With the current economic uncertainty, having a well-vetted, forward-looking strategy—one that has been scrutinized by both management and the board—is critical to assess whether it’s the right time to buy or sell, and more importantly, what price represents a fair valuation for an acquisition target.?

Here’s where forecasting comes into the scene as a powerful decision-making tool.?

A comprehensive set of projections, based on solid data and a strategic mindset, can assure buyers that the company they are considering has a strong understanding of the business and a clear roadmap for future capital expenditures, inventory management, hiring plans, tax strategies, and technological advancements.?

Forecasting empowers business and deals in several key domains:

• Operational efficiency by optimizing stock levels, machinery use, and logistics.
• Risk mitigation by identifying potential issues early, enabling proactive solutions
• Financial performance by enhancing cash flow management and goal alignment.?
• Team management by effectively planning staffing needs to ensure talent performance and satisfaction.?
• Commercial precision by focusing on clear business objectives to align marketing and sales strategies.

The Las Cabras Take on Forecasting: 3 Principles

At Las Cabras, we believe that forecasting is not just a necessary task but a strategic discipline that enables companies to better predict their future needs and manage costs effectively.?

Additionally, inspired by Pierre Wack’s take on Scenario Planning, we advise moving beyond linear thinking—that overlooks the unpredictable nature of markets and external factors— by embracing a flexible vision that incorporates real-time market information and contextual insights to truly understand the forces that could shape a deal’s future—whether that’s technological advancements, regulatory changes, or shifts in consumer behavior.?

Our agile approach to forecasting integrates three core principles—Iteration, Simplicity, and Discipline—ensuring a more precise, and easier-to-execute process and enabling businesses to confidently navigate future challenges.

Iteration: We conduct quarterly revisions to realign forecasts with shifting market dynamics. This ensures our predictions remain relevant and responsive, guided by the principle of "Predictable Revenue" to maintain accuracy despite changing conditions.

Simplicity: By focusing on the most impactful metrics—conversion rates and sales velocity—we eliminate unnecessary complexity. These key metrics offer clear, actionable insights that keep the forecasting process lean and focused, without sacrificing precision.

Discipline: Regular check-ins and data-driven adjustments are at the heart of our approach. This disciplined practice ensures that forecasts stay aligned with actual performance, helping businesses stay agile and proactive in managing future growth.

?Market or Pipeline?: Two Ways to Kick-Off Forecasting

Every forecast has two possible starting points, one from an analysis of the market and another based on taking a closer look at the pipeline (both current accounts and new opportunities).?

• Market-based Forecasting

Market-based forecasting aims to understand the broader economic context, so companies can gain valuable insights into their growth potential in a target market.?

This type of analysis follows a top-down approach, starting with macroeconomic factors such as the expected growth of a specific region and gradually narrowing the focus to industries or market segments, such as the Technology sector, and eventually specific sub-sectors like Venture Capital-backed startups.

To refine this analysis further, it’s essential to gather direct input from the client to better understand their unique situation. This dual approach allows businesses to anticipate changes more accurately, securing valuable market positions ahead of competitors.

• Pipeline-based Forecasting

Pipeline-based forecasting relies on an updated, real-time view of an organization's sales pipeline, enabling a more accurate prediction of revenue based on current deals and their likelihood of closing.?

For companies with a mature pipeline system, the forecasting process becomes relatively straightforward. For organizations that have not yet established a mature pipeline process, it is critical to coordinate with account leaders to assess current contracts and project future sales.?

At Las Cabras, we advise our clients to perform a weekly review of their pipeline to track progress, reinforcing best practices for managing sales teams to ensure that every stage of the pipeline is efficiently handled and that the forecast remains as accurate as possible.

How to Predict Commercial Performance?

Predicting new business opportunities is one of the most complex aspects of forecasting, as it involves assessing not only current market conditions but also the effectiveness of a company’s lead generation efforts.?

There are two main ways to track commercial performance:?

• Bookings, or closed contracts, prioritize deal closure and customer relationships. Managing bookings keeps the commercial team focused on closing sales, bringing them closer to customers and ensuring ongoing engagement. This approach emphasizes short-term results and customer acquisition.
• Revenue requires the commercial team to engage with operations to fulfill contracts and deliver value, aligning them more closely with delivery teams. This focus provides a clearer picture of long-term business performance.?

Finding the Right Metric: Business Units vs. Currency

In Forecasting, simplification is key, so choosing the right unit of measurement becomes essential. Two common options are business units (e.g., hours or subscriptions) and currency (e.g., dollars):?

• Using business units simplifies forecasting by focusing on tangible metrics, which avoids complications like exchange rates or inflation. This approach helps streamline processes and enhances organizational flow, particularly in environments where non-financial metrics are critical.
• Using currency simplifies coordination with other departments, making it easier to align sales forecasts with financial projections. It reduces the potential for conversion errors and keeps financial reporting consistent.?

Both options have their advantages, but the key is maintaining internal coherence. Whether using business units or currency, the goal is to reinforce the global vision and support agile decision-making.

The Art of Tailor-Made Forecasting

Every organization must find its tailored approach to forecasting, one that fits its unique objectives, data, and market environment. While there are many ways to build a forecast, the process itself is a valuable learning experience that reveals insights into a company's ability to evolve.?

In dynamic times, accurately predicting bookings, subscriptions, or growth is challenging, but mastering forecasting makes a company more reliable and trustworthy to clients, investors, and the broader ecosystem.?

At Las Cabras, we bring the expertise to help refine your forecasting process, continuously improving for whatever the future holds. Let’s ensure you stay ahead—contact us at las-cabras.com?