Planning, forecasting, and analysis throughout a crisis is a necessary part of recovery. But it can often be pushed into the background in favor of consistent action. This isn’t necessarily the wrong approach, especially during the first few weeks of reacting to what’s occurred, but it shouldn’t become your long-term approach.
Why you should compare forecasts to actual results more often
In fact, you should be developing projections and comparing them to your actual results more often in a crisis situation. Especially now, when things haven’t shifted back to normal for small businesses and dramatic industry changes are beginning to take root. So if you haven’t been carving out enough time to keep your planning documents and financial forecasts up to date, here are a few reasons why you should start doing it consistently.
Things can change on a day-to-day basis
In a crisis, things often don’t go as planned but one thing is certain, change is inevitable. The markets are volatile and shift at the slightest hint of relief or recoil at the thought of further hardship. Customers have developed equally sporadic and withdrawn spending habits that can lead to a massive sales boom one week and a virtual ghost town the next.
Everything from prices and product availability to delivery timeframes and interest rates are literally changing on a day-by-day basis. And if you’re not paying attention to how these and many other operational and financial services are affecting your business, you won’t be able to react accordingly. Now it’s not about scrutinizing every single detail, but being sure that you are aware of changes that are relevant to your industry, community, target market, and of course the operational status of your business.
For example, in our current crisis, the actual reopening of physical storefronts and offices has been less than smooth. Criteria for safe operations adapt, phases for reopening don’t always stick and everything is related to your location and business type. And it’s not just the health guidelines you’ll need to account for, but the reactions of your customer base.
You may reopen right away, but your customers simply aren’t ready to go out just yet. Or all of the sudden there’s a spike in local cases and things close down again, causing all the time and money invested in social distancing to lie dormant. If you’re staying up to date and checking your financials and forecasts regularly you can avoid costly mistakes like this.
It helps you track the success or failure of any adjustments
Making adjustments in a crisis can seem less like an actual strategy and more like survival instincts. You’re making decisions rapidly, trying to layout a crisis plan for you and your team, and then thinking about how you’ll actually track results after the fact. The good news is that you’re likely already looking at your financials to gauge the health of your business. But by reviewing them more regularly you can actually judge the effectiveness of any changes.
For example, maybe at the start of this crisis, you anticipated sales dropping by 50% from March to June, as well as an uptick in variable expenses to equip your team with remote work hardware. In order to compensate you paused your ad campaigns, limited additional contract work, and added in delivery and contactless pickup to your services. Logical adjustments that will hopefully maintain sales, minimize costs and keep your business running.
Now let’s say that your new service offerings really took off and sales only dropped by 30% in March and held steady in May and June. If you didn’t go back to check your actual results and update projections, you’d be working off of an outdated forecast that could potentially hamper your recovery. You’d instead realize that your shift to purchasing online is a big hit, and rather than staying steady in May and June, maybe you restart your digital ad campaigns to drive more people to your website.
Now, of course, actual scenarios likely aren’t this cut and dry but you get the picture. If you make changes and get caught up in the day-to-day operations, you may miss opportunities to make more viable adjustments. Or on the flip side, you may miss warning signs that what you’re doing simply isn’t enough.
It keeps your team up to date
If you don’t already do so, incorporating your full team in your planning and goal setting is a valuable tool for growth. In a crisis, it’s even more vital for identifying potential problems and opportunities that you may not be aware of. However, this is difficult for your team to execute without having an up-to-date understanding of the state of your business.
At Palo Alto Software, our leadership team immediately transitioned to providing sales, costs, and forecast updates on a weekly basis once COVID-19 hit. This has been a process they’ve continued to use on a weekly basis even through the beginning of 2021.
Having that information readily available has made it easier for different departments to collaborate and identify actionable priorities. It’s somewhat of a north star for key performance indicators and goal setting that has kept us lean, moving, and willing to try anything.
But this information would be impossible to convey if our leadership team wasn’t constantly diving into our forecasts and sales data on a regular basis.
Your long-term projections will be more accurate
Circling back to our sales example, we briefly mentioned the impact of working off of outdated sales, expenses, and cash projections. While this can dramatically impact your short-term planning, it also has a factor in the effectiveness of your long-term forecasts and broader organizational goals.
It can be incredibly easy to get so caught up in crisis management that considerations for the future just dissipate. One simple way to remedy that lack of foresight is by actively updating your forecasts with current financial results, which as we said before also helps equip you in the immediate future. These broader updates should be a bit simpler, but can at least give you an idea of what to expect in the next 6-months, 1-year, or even 5-years as you continue to make adjustments and navigate your business through the trials of today.
This provides you with additional context to consider when making decisions and helps you avoid losing sight of what long-term growth or stability looks like for your business.
You’ll be prepared to ask for funding or financing
If you found yourself scrambling to put together documentation for an SBA Disaster Loan or Paycheck Protection Loan, you’re not alone. And while those programs have released another round of funding, that doesn’t mean there won’t be a need to pursue traditional financing sometime in the future. And what will make you more likely to secure a loan or investment capital? Up-to-date financial data and robust financial forecasts.
Aside from turning your finances and forecasts into a management tool, you are actually preparing yourself to easily seek out a loan if or when it becomes necessary. Instead of you struggling to put together a cohesive package, you’ll instead have everything you need to quickly fill out and submit an application. This will also make it easier to pitch to investors on the fly and follow up with detailed information to back up your claims.
Comparing your forecasts to actual results isn’t a lengthy process
Comparing your results and adjusting projections on a daily or weekly basis doesn’t need to be a lengthy process. If you’re spending too much time digging into the numbers every day, you’ll lose precious time to implement any changes to your overall strategy. Instead, just set a few minutes aside to look at your results, make any forecasting adjustments, and then look to adjust your course. You can always set time aside for a deeper dive on a monthly basis as part of a plan review.
Hopefully, as you keep everything up to date, the review and adjustment process will become more refined and faster to implement. But if you find yourself struggling to input all your data and adjust forecasts accordingly, you can always leverage a tool like LivePlan to simplify the process. No matter how you choose to do it, just taking the steps to actively review and adjust your projections will help you not only navigate the rest of this crisis but establish long-term planning methods for your business.
Next steps to establish a dynamic planning and forecasting process
So after all that, you may still be asking how do you apply this dynamic planning style to your business? It’s easy to recommend that this is necessary and that the benefits are worth the investment, but it does take some time and effort to establish it as a business process. To help you get started here are a few actionable steps you can take right now to add live forecasting methods to your business toolset.
Shift to rolling forecasts
As we’ve mentioned throughout this article, there are benefits in regularly reviewing your forecasts. This rolling or live forecast method avoids sticking to a static one-year planning horizon to a monthly, or at least quarterly, review cycle. To start using this method, set a time for a plan review in the next month. Then, set the date for another review meeting the next month and so on and so forth.
Focus on revenue drivers
Take the time to review your financial statements with your team, making sure that you look past top-line performance and especially take the time to review your cash position. You want to be sure that you understand why something occurred and how it may connect to other areas of your business. From there, be sure to review your current milestones and long-term goals with your actual results in mind.
Update your forecasts
Be sure that you bring your forecasts up to date and make any adjustments necessary to create a realistic picture for the rest of the year. The whole purpose of this exercise is to help you plan and manage your business better, and an outdated forecast doesn’t help you do that.
To start, bring your actual accounting data into your current forecasts to set a baseline. Then, based on your performance, make any necessary adjustments to your sales, cash, and expense forecasts for the next month, 6-months, etc. You can do this using a spreadsheet, but there is a larger room for error with this method. Incorrect formulas, broken links, misplaced numbers, among other things, can give you an inaccurate view of your finances and take a lot of time to fix.
If you can, opt to use a service like LivePlan, that allows you to automatically bring your Quickbooks, Xero, and other accounting data into your scenarios. It’s a worthwhile investment that can help you save time, effort and allow you to spend more time making strategic decisions for your business.
Make data available
As we mentioned before, there are benefits to making your data visible to your employees. It helps them contextualize events, explore potential issues and provide unique solutions. The best way to do this is by making business dashboards available to your managers, allowing them to disseminate necessary information to the rest of your team.
These dashboards can provide quick insights from your forecasts, current financials, sales, and anything else that may be relevant. Starting with these snapshots, allows you and your team to then decide what they should take a closer look at.
Look for ways to improve
As you start to implement these processes, keep in mind that you won’t be doing things perfectly from the start. That’s the beauty of these processes. They are meant to help you identify areas in your business that need optimization, as well as opportunities that you can jump on.
If you and your team keep that in mind, you’ll succeed. You won’t stop looking for new ways to improve your business and will instead keep refining planning and forecasting processes to better serve your needs. It’s a surefire way to take a long look in the mirror and make decisions that may have not been relevant otherwise.
Editor’s note: This article was originally written in 2020 and updated for 2021.