Improve Your Business Forecasting
I have been asked multiple time recently “how do we forecast 2021, given the mess the pandemic created for my business, and the less than clear picture with all the potential variables?”. Working with my Vistage members and clients we realized that not all businesses fared the same in 2020. Even within single businesses, markets and product lines’ performances varied widely.
The ITR Economics forecasting model employs data overlaid on business phases to forecast. Using the 3 Month Moving Total (3MMT), the 3/12 Rate of Change (3MRoC), the 12 Month Moving Total (12MMT), and the 12 Month Rate Change (12 MRoC) was a starting point. We have added Current 3MMT/Prior 3MMT to create a Current 3 Month Rate of Change (C3MRoC) and the 12MMT/Prior 12MMT (C12MRoC) to provide a very current rate of change. Each data string provides a different view of company performance over time and implications looking forward.
Working with Scott Palka, Partner at PBO Advisory Group and Mark Neilson, founder of Accretive of San Diego, we created a workbook that allows business owners to compare and contrast the C3MRpC , C12MRoc, 3/12 RoC and the 12/12 RoC. By comparing the very current rates of change to the more historic rates, the business owner will have a much more detailed view of the company’s performance and expectations moving forward. We use the 3MMT as a baseline for the coming quarter, then look to the C3MRoC and 3/12MRoC as a guide for adjusting the forecast. The 12-month data provides a reality check on the assumptions.
Depending on how your business fared in 2020, the C3MRoC and 3/12 RoC will show you how the business has performed in the tumultuous first 6 months of 2020 compared to performance as you adjusted to the “New Now” of the last half of the year.
Moving into 2021, business owners can expect to see significant changes in the C3MRoc and the 3/12 RoC as compared to business performance in the first half of 2020. There are multiple tabs for individual product lines and markets that summarize in the Summary tab. Forecasting by month and updating at least quarterly, you will have a much clearer view of individual trends directly relating to total sales and inventory requirements by line, helping you to improve inventory turns and cashflow.
Download the tool here: Forecasting Model
Read the detailed ITR Economics one sheet here: ITR Economics: How to Analyze Data to Make Better Business Decisions
Contact me at jim@pinnacleceo.com for assistance with your business forecasting for 2021.
