“Prediction is very difficult, especially if it's about the future!”
No matter which writer or politician we attribute this bon mot to, entrepreneurs face this difficulty in two respects. On the one hand, the (macro) economic environment must be assessed as correctly as possible, i.e., the question of the global development of the economy, the development of the legal framework or other new trends, such as digitalization. On the other hand, development in one's own company has to be managed successfully - products and services need to be improved in terms of their marketability, suitable staff must be found and tied up, and cost structures managed, to name but a few issues.
Even in "normal" times, planning and forecasting is an art, in coronavirus times this task becomes much more difficult. No benchmark in recent history is available to us to correctly quantify impacts and assess them for our own company. So, what has to be done? The answer seems simple: plan, forecast, measure deviations, find explanations and learn from them to develop new strategies. This sounds like the day-to-day business of every entrepreneur, but it is so difficult to put into practice: who takes the time and the necessary resources to create a plan or change an existing planning or - much better - to simulate different scenarios? And how can I find a systematic way to institutionalize my plans, forecasts and simulations, i.e., to firmly anchor them in the company's business?
And if I find this way, then another very important question of every entrepreneur should have to be answered at any time: how much is my company worth right now? How much should my company be worth in 2, 5 or 10 years? What amount do I need when I sell or hand over at the end of my entrepreneurship in order to be able to live the way I would like to live in retirement?
It doesn't take much to answer all these questions: the data from the accounting department of the last few years (the tax advisor has ready at the push of a button!) and one or more moderated planning discussions (the consultant specialized in company valuation and company succession Can help). The result is a reliable determination of the necessary sales, cost structures and profits, which are absolutely necessary for the achievement of the targets.
This is joined by questions on the strategy of how to achieve the necessary value. Are new business areas to be developed or existing markets to be dealt with in more detail? The answers can only be found individually, but they have one thing in common: if a target value (=company value!) is calculated, progress can always be measured and matched against this objective.
The next step is to break down the (very global) goal of the company's value to the operational level: can I achieve the goal with less cost or only with revenue growth? What are the consequences of higher sales on my cost of goods, my material and personnel cost structure? Here, too, the tax advisor can help: the totals and balances listof history are particularly suitable for being made available as a database for the system of planning of the company. A simple download and transfer to Microsoft Excel should be sufficient.
After this we need an operational planning: based on the (substantial) accounts from the chart of accounts, the development of the business can be planned in detail, i.e., forecasted. Planning in three scenarios is even more helpful - likely, optimistic and pessimistic (further scenarios are possible, of course). Especially tools, such as Microsoft Excel, offer possibilities to quickly evaluate the results of the scenarios and to become aware of the effect of individual parameters on the overall result. Learning is paramount: even unprecedented crises, such as Corona virus, can now be simulated, i.e., quantified, and the results will point to essential paths for the future of thecompany: how long will it take to achieve the desired company value, what magnitudes must include the measures to change structures (cost or turnover), etc.
Last but not least, planning must be integrated into the company's day to day business. Management consultants can help in a special way: Future plan-actual comparisons or forecasts can then be directly linked to the reporting system in the company, now supplemented by an ongoing company valuation and a regular deviation analysis.
Planning, plan-actual comparisons, forecasts and scenarios: We should not be shy about making and reject forecasts, to plan and measure systematically and to learn from the deviations. So that we can actively shape the future and not surrender ourselves to the future!