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Having the ability to see or predict the future has always been one of those elusive thoughts most business owners have dreamed about at some point in their lives. What difficulties may lay ahead, the uncertainty of assured growth and profits, especially in the current economy, can bring fear, uncertainty and countless sleepless nights, even to the most experienced owner. So when I’ve asked business owners what is the biggest challenge they face, the prevailing worry for most of them, is their business’s future.
So where can we get the ability to see the future? If you think I’m suggesting a magic “Genie” or visiting a fortune teller, you’d be wrong. If that was even a remote solution, running a successful business could be done by anyone! If we could have the ability to peer into the future, would you be better equipped to make wise decisions and reduce or eliminate the risk of failure? Sadly, for most business owners, this is where the conversation ends. They can’t imagine a paradigm change that could provide certainty for the future to reduce or eliminate the fear of risk or failure. That was how I operated myself until I began to understand there can be a crystal ball for business, by learning how to forecast my opportunities. You know CEOs, we all want a strong forecast, one that’s predictable, one that we can “hit” with a very high percentage of success. The problem is, creating that forecast is one of the most difficult pieces of business planning CEOs should do, but don’t. Let’s talk about that for a minute.
Here’s a tip: Forecasting opportunities begins with your understanding of your company’s current client activity. Tracking client or customer sales activity will allow you to forecast what revenue those clients may provide your company for the future. It will help immensely to understand who those customers are, what they need and want, whether or not they are likely to do business with you again next year, and ultimately to what extent. All of this analysis should be available through your customer retention systems.
New opportunities can also be forecast with some accuracy by using your pipeline. The pipeline report tracks opportunities that your sales reps are working on. You may call them something like: quotes, bids, RFQ’s, proposals, or contract pending. If you track what percentage of those opportunities actually become sales, over time you will learn what your company’s average closing ratio is for those possible future sales. To make it to the pipeline they must be real prospects that you or your team have met with, a need has been identified that your company can fill, a mutual agreement to consider the expense has been submitted and the final decision has not been made yet. The last step is determining what time period from quote to agreement is required for your business’s typical cycle. With these two systems above in place, you have a crystal ball for forecasting future business income.
Unfortunately, forecasting losses is also part of the analysis of the future for your business. To be accurate, your forecast must predict how many clients you are likely to lose. You should have systems that allow you to evaluate how many clients you lose in an average year. You also want to know why you lose them. To complete your forecast, ask what you can do to improve upon your loss percentage? Then that becomes an opportunity also.
Finally, your forecast systems should include analysis of changes in your industry. Are there any opportunities for new products? Are there any products or services you offer that your customers don’t know about or purchase? Is there a new way to increase the market share for your current product? Is the industry significantly changing so that you need to prepare some new products or services? This is a lot to consider, but then, you never expected forecasting your opportunities to be easy, or did you? If you would like some guidance in developing your crystal ball, why don’t you give us a call, it’s not magic, were not genies, it’s what we do.
Steven Lynn is a CEO Coach with Estrada Strategies. He can be reached at 909-578-7000.
By: Steve Lynn
