Today’s forecast is… unreliable!

How accurate are your forecasts? How sure are you that you will achieve them?

Perhaps the most famous forecast in the UK comes from the Met. Office, which was set up in 1854 to predict gales and save the lives of sailors. Even after over 150 years, they struggle to forecast with confidence more than a few days in advance.  

One of the things the Met. Office does very well is to understand the factors that will influence their long range forecasts. This then means that they say how confident they are that a particular forecast will happen – and why.

The main difference between Met. Office and business forecasts should be that businesses have more control over the factors that influence their business performance. They should also be able to shape their businesses to increase their confidence in their forecasts. Tactics like focusing on creating recurring revenue streams or diversifying products/services or client bases make it much easier to create robust forecasts and enable business owners to understand the impact of marginal and new activities.

Companies that can’t manage the factors affecting their businesses and/or produce reliable forecasts are significantly less attractive to potential acquirers. In fact, failure to achieve targets is one of the main reasons why deals fall through in our experience.

If you’re considering selling a business within the next 2 – 3 years this is a good time to get to grips with forecasting. Your exit price expectations will naturally be based on your company’s financial performance to date but that is just one aspect of sale value. Future performance, based on quantitative and qualitative information is also a key factor.

Any serious buyer will expect you to explain how the business will grow; after all they’re not buying the past. A set of financial tables just won’t cut the mustard in this situation. Sellers must be able to produce realistic, achievable forecasts for at least 2 years forward and be able to articulate how they will be achieved. 

If you’re not sure your business will achieve the price you want, or need, talk to us about our Growth to Exit programme; we can help you work out what your targets need to be in order to achieve the exit value you want, and what you need to do to ensure you deliver them.