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Forecast Documents for Business

HEC’s Etienne Krieger explains the value of business forecasting, planning, and budgeting

Thursday 11 July 2019


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It is dangerous to drive your business on instinct. Unless you have extraordinary margins and abundant cash flow, ignoring a minimum of forecasts and budgeting can have dramatic consequences.

Creating and developing a business goes hand in hand with having a vision, strategic plans, financial forecasts and operational plans. These documents make it possible to translate your objectives into actions. The time horizon of these plans varies, from the nearest to the farthest.

A budget is usually established over one year while a marketing plan can be deployed over two years to support the development of new offers. Finally, a business plan is usually built and costed over three to five years.

Dwight Eisenhower, President of the United States between 1953 and 1961 had perfectly summed up the importance and limits of the planning process with the aphorism: "Plans are nothing, planning is everything."

In economic and financial terms, a plan may seem utopian since most observers know that it will almost never happen as planned.

The planning process is essential, however, since it allows managers to be involved in defining objectives and means of implementation.

The budget, the marketing plan and the financial part of the business plan lend themselves perfectly to this iterative and collective approach. On the other hand, a provisional document created by a single person would have very little chance of being implemented efficiently because of the lack of support from the entire team. This applies in particular to the budget, which allocates scarce resources among several functions: the objectives of turnover and profitability will be all the better achieved if the teams concerned have been involved in the process.

The business plan: strategic and financial tool

The business plan usually summarizes your business project in about fifteen ‘slides’ and/or about twenty pages.

There are many business plan variants: it's up to you to focus on the key dimensions of your business plan, including:

  • The targeted need, your offer and your value proposition
  • Management and organization
  • The market, the target audience and your business strategy
  • Competition and your competitive advantages
  • Intellectual property and your other assets
  • The main stages of development and your planning
  • Your financial forecasts and financing required

Financial forecasts are the encrypted translation of the business plan. They are generally summarized rather succinctly; the detailed accounts being provided in the appendix.

The marketing plan: the art of creating a ‘prospect pump’

The dream of any entrepreneur is to create a ‘pump of prospects’– a range of commercial and marketing actions to reach and retain customers effectively.

The process that leads to the marketing plan is as important as the plan itself; it is an exercise in consistency and a refereeing of resources that must involve all the managers of the company, otherwise your vision and your action plans may not be shared and even less implemented.  Beyond the intrinsic quality of your products and/or services, your budget will be unlikely to be achieved if you fail to create this famous prospect pump and then to transform the test on a commercial level.

This marketing plan will identify and map the main actions required to achieve your business objectives.

If this work of reflection and planning is done well, your business will gain in efficiency, including lowering the cost of customer acquisition, which is calculated by dividing all of your marketing and sales expenses by the number of orders

The budget: zoom in on revenues and expenses for the coming year

The budget estimate sensu stricto presents, on a monthly, quarterly, half-yearly and annual basis, your forecasts of revenue (sales, subsidies and other operating income) and expenses (costs of sales, external expenses, wage costs, and taxes – without forgetting your investments). This projection is more detailed than the financial part of the business plan.

The budgeting work can answer several essential questions, which go beyond the strictly accounting dimension of such a document: priority segments and corresponding offers; objectives in terms of sales volumes, turnover and market share; direct and actual costs required; planned tangible, intangible and financial investments; external charges required, including promotional expenses.

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The essential virtue of the budget, the marketing plan and the multiannual forecasts of the business plan is to allow debate around many technical, commercial, strategic and financial issues.

It goes back to Eisenhower's aphorism that plans are useless as such, while the planning process is essential for building consensus.

The preparation of provisional accounts is a unique opportunity to take a step back and ask yourself, with your associates and your main shareholders, the essential questions about the development of your company.

Good luck for the development of your different forecast documents and for the implementation of the corresponding action plans!

Dr. Etienne Krieger is an Affiliate Professor at HEC Paris. He is academic co-director of the HEC Startup Studio program as well as of the ESA_LAB@HEC 'Exploring the Future of Space Economy' applied research chair created by HEC, ArianeGroup and the European Space Agency (ESA).

He authored numerous books, papers, financial and business tools for entrepreneurs. He has advised more than 800 innovative companies and is member of the Paris Saclay Seed Fund investment committee.

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