The Simplest Picture is the Best Forecast

Would you rather know the complete wind-speed, temperature, and latitude of a hurricane… or to see this satellite picture of it barreling toward you?

To me, forecasting business performance is the same thing.  Give me the big picture so I can worry about the things that matter (like finding batteries and bottled water) rather than wasting time pouring over endless details (like wind-speed and barometric pressure).

I’ve built a tool to do just that, and I want to share it with you.

It’s a simple spreadsheet that makes a simple picture.  But as the photo shows — sometimes the simplest picture is the best forecast.  Before you read further, download the forecasting tool I built now: This One Page Forecast Template is a simple XL file that will help you create a very powerful financial forecast.

Now, use this easy 3-step method:

1. Start with last month — and nothing else.  Put the results of last month in the first column.  Be sure you have the totals.  After that, the page should be blank.
2. Think about next month.  This is what forecasting is really about, but keep it simple.  What is going to change next month? Will you run a sale?  Will you hire a new employee?  Will you sign up a big new customer? Write the changed amounts into the next column.
3. Enter only the changes.  Put only the amounts you think will change into next month’s column.  Add notes to keep track of the business issues driving the change.  If you think sales will go up, add the change to sales (not the whole sales amount).  If you think expenses will go up, add expenses.  Have to buy a new car next month? Put that in, and note the amount.  Are gas/shipping prices increasing? Don’t forget those, if they’re significant.
4. Add or subtract the changes to the totals. If sales will go up, add the new sales to last month’s sales total.  If you’re going to hire a new person, add their wages to last month’s expenses.  Tally up and record the new profit at the bottom of the next month’s column.
5. Repeat steps 2 to 4.  For each new month, start with the margin from the last month and add only the changes.

OK, you got me. I took 5 steps to explain a 3-step process.  I could have just said, “Take one month’s actual results, add or subtract the next month’s changes, and calculate new totals.  Repeat.”

If you follow these steps, you’ll end up with one page that has nothing but a few very important numbers on it — the changes you see coming and their impact on your profits.

Yes, this is over-simplified.  So what!  How much better is it to have one page that you can see without squinting, and actually use for planning purposes?

I don’t need a page full of repeating numbers telling me that my rent is $3,655.27 per month… I’m pretty confident about that already.  What I need to know is what happens if I expand and rent a second location?  Or negotiate a better lease?

Simpler is better.  A One Page Forecast can be the best management tool you’ve ever had.  It may even be simple enough to get non-finance people interested in the future again.  I’ve seen it work wonders on my team.  I’d love to know how it works on yours.

Give it a try and let me know!

Dedicated to your (forecastable) profits,

David