Forecasting for My Self-employment Venture

Forecasting is not an exact science. If it was, we wouldn't be at picnics in the rain, or caught without our umbrellas. Just as with weather forecasting, business and economic forecasting can at times leave you caught out in the rain.

How and when you forecast can make a significant difference in the ability of your business to survive and maybe even thrive in a variety of economic conditions. Here are some of the factors that I planned for and dealt with when forecasting expenses for my venture into the self-employment world.

Effective Planning

One of the keys to business forecasting when it comes to a small operation is to actually do it. How else are you supposed to have an idea of where your business has the ability to go and grow, as well as how to compare your forecast with actual results, and where there may be areas for improvement?

It can be difficult to forecast with small businesses due to economic trends, seasonal adjustments, and demographic shifts that may occur in your specific business area. I found that forecasting was also difficult when I was just starting out and had little previous data with which to work and base my future estimates and assumptions upon. As with any planning, I had to base my estimates upon a mixture of current trends, my goals, comparison of information I had gleaned from others in my particular industry, and of course -- my best guess.

A Realistic vs. Optimistic Approach

So you've collected all your data, made adjustments for seasonal sales trends, and started your forecasting -- but now what? You may find yourself wondering if it's better to forecast a little high in order to push yourself harder or maybe a little low just in case you find your business isn't progressing as quickly as you'd hoped. Which way you decide to go may largely depend upon your personality as well as the personality of your business. Are you a glass half full or a glass half empty type of entrepreneur?

Some small business owners prefer to estimate a little lower when doing their projections in hopes that they will have a banner year and boost moral. Others prefer to estimate high so as to push themselves to achieve more and strive for loftier goals. I personally prefer the latter, choosing to push myself harder since no one else is there to do it for me.

Tracking and Gauging Progress

Forecasting will likely be of little use if you don't track and gauge your progress along the way. Forecasting can provide a vision of future finances, but if you have nothing to compare your progress to, it may fail to provide the full picture of where your operation is headed and how efficiently it is headed there. And without proper tracking, it can make it difficult to pull information from your forecasting to help predict future numbers.

To assist me with gauging how I am progressing in the business realm, I utilize several tracking tools. Included in these tools is an expense tracking spreadsheet, income tracking spreadsheet, as well as forecasts for the current and following year. This way I know where I've been, where I'm at, and where I'm going.

Re-evaluating & Adjusting

As happens with many things, forecasting often becomes easier with time. By watching sales trends, seasonal adjustments, and certain events that may affect sales or income, I'm able to get a better feel for how to forecast and make more accurate predictions. This also makes it easy to decide pricing adjustments, inventory needs, and what type of work orders and projects to take on or reject.

More From This Contributor:

Self-employment: Finding the Financial Balance

What Financial Freedom Means to Me

How One Page Simplified My Financial Life

Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.