In the realm of business financial planning, one indispensable element takes centre stage - sales forecasting. Whether you're part of a theatre company, a dance troupe, or a business involved in manufacturing or retail, understanding what your future income might look like is paramount for success. As freelancers or consultants, the same principle applies. Today, in this episode of "I Hate Numbers," we embark on a journey to explore the perils of excessive ambition or undue caution in our sales forecasts.

Navigating Uncertainty

As business owners, we acknowledge the impossibility of crystal ball gazing into the future with 100% certainty. We're not endowed with superpowers, and our task is to navigate through an uncertain landscape. Many businesses resort to historical sales patterns as a basis for their forecasts, an approach that, while easy, can be overly restrictive and lacking in ambition.

Stress Testing and Critical Thinking

Regardless of whether your approach is historical or forward-looking, stress testing your sales forecasts is crucial. Computers and planning platforms, while efficient in crunching numbers, lack the critical human touch. Ambitious forecasts demand answers to critical questions, aligning projections with historical performance, and substantiating them with evidence and marketing efforts. For a powerful online tool in this regard, check out "Budgetwhizz" developed by NumbersKnowHow.

Avoiding Pessimism

Overt pessimism in forecasts necessitates a deep dive into factors influencing buyer behaviour. Occupancy rates, historical anomalies, and external factors like economic pressures must be considered. Storytelling, a retrospective look at buyer behaviour during lockdowns, offers valuable insights.

Clearly Stated Assumptions and Digital Eco Accounting

We emphasize the importance of clearly stated assumptions in forecasts, allowing for modifications while keeping an eye on changing variables. The sales forecast, being the linchpin of financial planning, impacts resource allocation and costs. We recommend a digital eco-accounting system, such as Xero, for tracking, recording, and integrating historical patterns. Additionally, platforms like "BudgetWiz" offer a seamless integration to facilitate easy coordination.

In Conclusion

In the realm of financial forecasting, substance behind the numbers is paramount. Whether aiming for the stars or playing it safe, ambition backed by solid reasoning is key. Undue pessimism can limit potential, while excessive caution opens doors for competitors. As we wrap up today's episode, we encourage businesses to adopt a mindset of continuous questioning, stress testing, and revisiting assumptions to thrive in an ever-evolving landscape.

When you are preparing your business financial plans, (and if you're not preparing your business financial plans, why not), sales forecasting plays a vital element. This applies to whether you're a theatre company, a dance company, a business that makes things, you work as a retailer, your business is as a freelancer, consultant.

Doesn't matter. This topic, the topic of sales forecasting, having an idea of what your income will look like is vital for your success. In today's episode of I Hate Numbers, I'm going to explore the dangers of being too ambitious or even too cautious in your outlook. I'm going to provide some practical tips and sanity checks to help you keep your forecast on track.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks, and welcome to another episode of I Hate Numbers. I'm your host, Mahmood, business finance fixer, author, and tax advisor and owner of the firm I Hate Numbers and Numbers Knowhow. I love to present topics in a sort of jargon free way to help you and your business thrive, let alone survive. Let's crack on.

Now when we look into the future, when we look through the windscreen of our business, we're not playing the role of crystal ball gazing. We're not saying with 100 percent certainty what the future will look like. If you were to do that, then you would adopt some incredible superpowers. We're trying to navigate through an uncertain landscape, and we cannot predict, it's absolutely impossible to predict with 100 percent clarity and certainty what the next 12 months will bring.

However, as business owners and planners, we've got to form some idea of what may lay ahead. Now one common approach that businesses will adopt when they try and forecast their sales, their forecast, their revenue lines, is to look at history. And I don't mean historical books, but historical sales patterns,

see what's happened before, and use that as a basis to project forward. Now this method, albeit easy in some respects, can be quite restrictive and lack ambition. If your approach is to merely say, let's match what we did last year, perhaps add on a couple of percentage points, there are inbuilt limitations to this approach.

History, what's happened before, may not repeat itself. There may be abnormalities, there may be anomalies that have happened historically that will not repeat themselves. Now computers, planning platforms, can crunch the numbers. And please check out the show notes by the way for BudgetWhizz, a powerful online tool

developed by Numbers Knowhow. I digress. Computers and planning platforms lack the human touch. They lack that critical insight, that critical thinking. So whether you're basing your sales forecast on history, or your future aspirations and ambition, make sure you subject that forecast to some stress tests, some what if scenarios.

So if you're planning for a 50 percent increase in revenue, for example, from your theatrical performances, then certain critical questions need to also be answered. What is it you're basing this increase on? Does it coordinate? Does it align with the number of tickets sold? Occupancy in the theater? The demographics of the audience and what their spending behavior and their buying behavior is?

Does it reflect historical performance? Do you have some form of evidence to support the figures that you're coming up with? What's the marketing efforts that you're investing in to achieve this? If you expect a dramatic sales growth, but you're not backing it up by any sustained and powerful marketing activity.

If you don't have a action plan to support that, then that's going to be quite fanciful. By the same token, if you're spending and investing a lot of money in audience development, in getting new people to buy from you, getting the same people to buy from you, but you're expecting a very small level of uptake on your sales line, then there's got to be something awry there.

Now if you are overtly pessimistic in your forecasts and there is a tendency to be pessimistic on the sales line and effectively very pessimistic in terms of how much we're likely to spend, then it's crucial you consider all the factors that may influence your sales. All those factors that influences buyer behaviour.

So, for example, as we mentioned earlier, have you factored in occupancy rates, participation levels, and any anomalies that have occurred historically but are unlikely to repeat themselves going forward? Always let the story of your business guide your forecasting. We go back in time, buyer behaviour, for example, during lockdown, where more businesses went online, where people were at home, businesses were more home-based, buying patterns and behaviors changed.

That may not replicate itself as we enter a brave new world where lockdown is not quite behind us, but it's a thing more so of the past. Now one other thing to note when it comes to forecasts is to make sure you've got clearly stated and documented assumptions. This allows us to revisit and modify our forecast while keeping an eye on those variables that are likely to change.

If we made assumptions about perhaps economic pressures from inflation, consumer price indexes, how much people are likely to be spending on average, conversion rates from our web traffic, and stating what assumptions are, make sure we can track those assumptions, make sure they're reasonable, and like with any planning, planning is not about a plan, it's about an approach, it's about a mindset.

It's about a methodology. And all the time we're revisiting and questioning the assumptions on which we base our forecasts. What else is worthy of saying? Now when you are creating your sales forecast remember is first and foremost the most vital part of your budget. The most vital part in your financial forecasting.

The sales line, what you're going to generate by revenue, will have an impact on what you're going to invest, the resources that you have to deploy. The cost that you're likely to be incurring. Don't question the numbers straight away, immediate them. Spreadsheets can give us that false sense of hope.

Question them, interrogate them, stress test them. Subject them to a what if scenario. This will help overlay the costs and resources that you need for your business. To make life easier, all businesses, in my opinion, should have a digital eco accounting system. Typically something like Xero that we implement for a lot of our clients.

You can not only track and record the data, but we can visit that. We can extract historical patterns. You can, if you've got a planning system, like BudgetWhizz and also integrate it. And therefore you can formulate your plan and you can extract the data and make it sink and make them coordinate quite easily.

Now, if your business is one that's starting from scratch, there's no history. It's a new startup, perhaps a new product that you're rolling out, then there are still methods available to create that sales forecast. We'll pick that up on a future episode on I Hate Numbers. So what can we summarise folks?

Well, in summary, when it comes to financial forecasting, make sure there's substance behind your numbers, whether you're aiming for the stars or perhaps playing it safe, be ambitious, but back it up with solid reasoning, with some degree of coherency and rationale. Avoid undue pessimism which could not only limit your potential but impact your business negatively.

You may delay on investing in recruiting new staff, investing in assets which are going to help you generate funds for the future but if you're overtly cautious when there's no good cause to do so, again, you're going to be limiting your ambition and opening the door for your competitors to come in. I hope you found today's episode useful folks and I'd love to hear your thoughts and experiences with forecasting.

How do you adopt that? How do you go about it in your business? Feel free to share your thoughts. Until next time.

We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.