Sales Forecasting Is The Achilles Heel Of Business Planning

Forecasting future sales is one of the most difficult areas for many companies. The challenge is to produce consistent and accurate advance information which can be used by production, stock and service managers to plan for future demands.

In practise, much of the forecasting work currently undertaken is very random, if not haphazard guess work. It is based on highly subjective reports of the sales people, often under short term pressure to predict acceptable levels of achievement in order to meet targets.

As a result much of the medium-to-long-term sales order forecasts are often made up of business projections based on nothing more scientific than optimistic guess work rather than on disciplined and realistic assessment of likely conversion of sales from individual customers.

Companies spend thousands of pounds and hundreds of man hours on their annual, quarterly and monthly budgeting and forecasting activities.

Financial management techniques and systems have developed apace in recent years but these have little input into the forecasting process, especially predicting short and long term sales.

The pressure for accuracy is growing. Jobs, investment and expenditure depend on making the right assumptions and predictions. Too often companies fail to spot in advance negative trends or competitive activity which impinge on their ability to win new orders.

Most forecasting, in the widest sense, is based on historic information with some allowance for highly subjective judgements such as the economic climate, trends in the industry etc.

The Achilles heel of even the most significant business planning methodology is an almost uncritical acceptance of what the sales team predict as imminent or long term business opportunities and their value.

Companies put complex and time consuming reporting procedures in place to capture data but can be extremely uncritical of the quality of the information itself which is provided.

Frequently the sales predictions – short, medium and long term – are highly suspect. They depend on the sales team’s personal, often highly subjective views, and often reflect the pressure for ‘certain sales levels to be achieved’

Predicting the real chance of winning a particular order will change the closer the customer gets to placing the order. Two or three months ahead the sales men will report the order as ‘in the bag’, closer to, the odds will often be reduced or even discounted. There is no discipline or consistency in the process. Orders ‘lost’ now will be replaced by ‘new’ opportunities conveniently two or three months down the line. These new ‘orders’ will be lost as the time for their confirmation gets closer. Thus, the organisation never has a realistic assessment of its potential sales.

What is missing is a management awareness of what is really happening to ‘vapour sales opportunities’ and a complete lack of system and discipline in predicting the real possibility of winning specific orders consistently. These ‘vapour sales opportunities’ represent unsubstantiated sales opportunities which can amount to anything up to half of the ‘pipeline’ business being reported to management from month to month.

Sales teams are relying on a base level of business coming in to cover up poor predictions and to replace lost orders previously anticipated. This is one reason that organisations frequently fail to spot downturns or changes in their business environment.

The solution is a proper structuring of reporting procedures. Apart from eliminating unqualified business this process can help the organisation be more responsive to real business and focus on genuine problems and opportunities which the process identifies.

A Leadership Approach to Developing Your Business Plan

Have you ever heard of: “follow your dreams” – or – “don’t ever let anyone deny you from reaching your goals”. The central force behind designing a leadership business plan is the idea of uniqueness; in planning and convincing others to follow you, in a worthy, meaningful venture based on the merits of profits. It is rare that one gets on a business venture without the desire to accumulate profitable growth to the long hours of your labor. The reason I call this concept “Your Business Leadership Plan”, is because, the key figure whom will need to be in the forefront of convincing others to join your business leadership efforts; we be the leader of the “Business”. The leader of the Business plan will have to be the one early on, to scout for resources and think about developmental issues in all areas of conceptual organizational management planning designs.

The business leader/executive will be the one who will need to think of the issues of: aggregate business accountability that involves liability issues, human resources, financial systems analysis and financial forecasting, operations of performance and quantitative and qualitative systems evaluations, marketing that will include product image and perception strategies; and downright ongoing leadership teaching. Additionally, the business leader must guide and empower the executive team of the company and all employees of the organization. To serve in that role, the business leader must do all the thinking in advance on how he/she envisions the organizations, three, five and ten years goals and objectives, as part of the overall strategic plan of action. So often, business leaders and leaders in organizations flow along; not recognizing the business issues of the probabilities’. Business leadership planning is about bringing people together for the purpose of identifying roles and responsibilities in forming a strategic plan and put it into action. And, it needs to be done with the caveat of an emergency recovery plan that is available should matters not unfold as planned.

It is the responsibility of the business leader to set the standards for the rule of implementing process management practices that involve policy and procedural issues. It will necessitate the effort of identifying the right combination of individual roles and responsibilities: to assess people’s strengths, skills and expertise for the sole purpose of creating the TEAM. I have not seen in my thirty five years of leadership management experiences; a business leader form a business plan all alone; it just does not happen; it needs to be a TEAM. The executive business management TEAM must be the one who will be part of designing the company’s business leadership plan. They will be the ones who will carry out the strategic business leadership plan to action in efforts to create more leaders. Dr. Martin Luther King Jr. one said “in this movement we are all leaders”. And, that is what business leadership planners ought to be thinking as the planning is take place; – How do we create more leaders?

The same concept holds true for business leaders designing business leadership plans it needs to happen as a team to form agreements, to form the message of the plan and to display the plan to others in the organization as a united effort, which the organization will pursue. These concepts discussed are applicable in any setting of organizational leadership from small to large organizations; it’s just a matter of working as a TEAM in the formation of the Leadership Business Planning process.

Business Planning and Business Plans – What’s the Big Deal?

Whether you are a veteran business owner, have recently begun your own venture, or are still in the dreaming stages, you have invariably spent many hours thinking about and envisioning your organization. While it is always exciting to try to realize your dream in your mind and to project that image into your future, the realization that barriers, stumbling blocks, and necessary “to-do’s” exist. These subjects range from broad to very specific, and can include questions such as:

Who is my ideal client?
What would be a good name for my organization?
What is my unique selling proposition (USP)?
How will I balance my work life with my personal life?
How big do I want this business to be?
Do I have the necessary resources? If not, where can I get them? If so, how do I most effectively utilize them?

The list goes on for pages and pages; indeed, there are numerous resources that outline these very details, and putting some time into exploring these ideas is always a smart move. For some specific ideas, check out some of the free articles on offer by MEG Enterprises.

The reasoning behind developing a business plan for businesses of all sizes can vary, but business plans are most often created for two primary reasons: as a management & planning tool, and to acquire funding for operational business needs.

Management & Planning Tool

If you are like many other small business owners, you are not only the owner of the company, you are likely also actively involved in the day-to-day operations as the President/CEO, the marketing department, the IT department, the HR department…the list goes on and on! One of the most important things to remember in trying to bring all of this together into a cohesive and efficient package is that planning is vital!

Many small businesses take a “fly by the seat of your pants” approach to operating their businesses. For example, let’s say that an excellent business opportunity arose for you, an opportunity that would net your business $5,000 over the next 3 months. However, in order to take advantage of this opportunity, you need an initial cash outlay of $1,000. Do you have the resources necessary to take advantage of this opportunity? If your answer is no, you may have been able to easily accomplish this goal by planning for such expenses in advance through a business plan. Even if having cash at the ready is not a viable alternative for you, you may have planned to have a line of credit available for such opportunities, knowing that in your field these opportunities do arise from time to time.

In a more broad sense, business planning helps businesses of all sizes to deal with the day-to-day needs of the organization by forcing the owner to weed through the operations of a typical work day. Business planning will assist you in understanding how to effectively market your business, how to understand and plan for financial stability both now and in the future, how to carry out your daily operations with a necessary level of routine, and so forth. Moreover, while unpredictable issues will certainly always arise, effective business planning will not only help you to navigate the predictable operations, but will also take these unpredictable situations into account. This will help you to deal with these issues with a level of comfort and ease, knowing that you have thought through and planned for such events.

In essence, here is a great way to think of superior business planning. Imagine you are taking a road trip from California to New York. No planning (“flying by the seat of your pants”) would involve you getting in the car and driving “East” on every freeway you come across. Adequate planning would involve mapping out your course, planning where to stay overnight, where to eat, sights to see, and so forth. This is a much better plan indeed. However, a superior plan would take all of these ideas to the next level by planning for “what if”: what will I do if I get a flat tire, if I run out of gas, if someone gets sick, or if I lose my wallet? You can see how the superior plan is clearly the best in most situations in that it allows for flexibility, plans for the expected and the unexpected, and allows you to spend more time enjoying the trip, knowing that you have all of your bases covered.

HELP…I Need Cash! (AKA Creating a Business Plan to Acquire Funding)

Another reason to create a business plan is to acquire funding. In today’s struggling economy, having access to cash as a small business is vital. In developing plans for this reason, a much more specific approach is taken. Here, the plan is created with a specific reader in mind: the lender. Whether seeking funds from a bank, an angel investor, or so forth, knowing your audience is vital.

How do you create an effective business plan in this situation? Well, simply stated, place yourself in the shoes of the person lending the money. What would you as the lender want to read in a plan? First and foremost, these individuals want to see that you have demonstrated the ability to repay the loan with the required level of return on investment (ROI) and within the required time frame.

These areas require that you present a strong case for your proposed financial expectations, grounded firmly in the supporting information of your plan, including marketing, market analysis, business operations, and so forth. Having confidence in your business and in yourself will assist you in demonstrating the potential for your company and in being able to deliver what your investor is looking for. Doing your due diligence and knowing the facts surrounding your business and your market will prove to be of great benefit when selling your business case, both in writing and verbally, to the lender you are seeking funding from.

So, How Do I Create A Business Plan? What Does It All Come Down To?

Although the term “business plan” conjures many negative images in the eyes of some business owners, taking a step-by-step approach will prove that creating a business plan is much less daunting than one might imagine. Although no two plans are exactly the same (the necessary details of the plan can vary between companies), the contents of a typical business plan include the following topics:

Executive Summary – Sell your business to your reader!
Business Overview – Giving a general summary of the business.
Market & Competitive Analysis – What environment are you competing in?
Marketing & Sales Strategy – How will you “win” in your market?
Organization Plan – How is your organization structured?
Financial Projections – Current status and future outlook.
Funding Sought (if required)
Key Milestones – What are your specific & achievable goals?
Critical Risks – What keeps you awake at night?
Appendix/Attachments

Does this look like a lot to you? Well, believe me, as you truly delve into the details of the plan and your business, you will be wondering why there isn’t more room for details!

The most important aspect of business planning (the “What does it all come down to?” part), however, is spending the time to do your research (“due diligence”) and critically thinking about these various aspects of your business. Of course, it is impossible to anticipate every detail simply by spending time thinking and writing; it is for this reason that plans are referred to and viewed as “dynamic”. However, the more issues and scenarios you are able to come up with ahead of time, the more prepared you will be to handle these as they arise.

So, in the end, I encourage you to realign whatever preconceived notions you may have of the business planning process and view it not as a daunting task or a necessary evil of running a successful business. Instead, view it as yet another opportunity, the chance to help make your dreams into a reality by mapping out the needs of your business, your customers, your employees, your suppliers, your community…and yourself!