Looking at long-term goals for a business is important, but the short-term goals and decisions can determine whether a small business succeeds or fails.
The rolling forecast puts a focus on these short-term goals. It gives an honest, sober assessment of where the business actually stands and where it’s going. Once a rolling forecast is implemented, the business owner can have those conversations with employees to analyze the implications of decisions before they are made.
This process truly helps everyone make decisions that will affect the company immediately.
Without a rolling forecast to look forward, making those decisions with only historical information and a current bank account balance is like driving down the highway in reverse looking through the rearview mirror; it’s difficult (if not almost impossible) and dangerous because you can’t accurately see where you’re going.
For example, the business has the opportunity to buy a used piece of equipment, or lease a new one. Although the used piece is a good price, the total cost of it is due immediately.
– Can we take that hit on cash now?
– Leasing a new piece of equipment spreads the cost out over a longer period of time, but then we won’t own anything new when that lease ends.
– Which is better for the business?
– What can we actually afford?
Or maybe the business is short on hands and needs to hire someone.
– Can we afford to hire someone this month, or do we have to wait a few months to wait to make up the revenue that wasn’t made this month?
– If someone new is hired to the team, they need to be paid, even if they don’t affect revenue. Can our company’s cash inflow handle that additional employee’s salary?
The rolling forecast is meant to make these decisions, and others like them, much easier by providing a process that allows the vetting, with real numbers and their implications, of these short-term decisions for the company.
By having a regular monthly meeting that looks at the short-term what-if scenarios, the business owner will have a greater knowledge of what the company’s future incoming cash flow looks like, and will be better prepared to effectively make those decisions.
It also makes the business owner and management more confident, helps them sleep better at night, and be more empowered to make good decisions that will bring in more profit for the company.
Trying to figure out where you want to go by only looking in your rearview mirror is impossible. You have to look-forward, towards where you want to go and the success you want to bring in. The rolling forecast is the tool that allows the business owner do exactly that.