Challenges of business forecasting and how to overcome them

Business forecasts are essential to growing a business as they help you predict the industry environment. These predictions include market conditions, impacts, and demand or need for products or services. Forecasting enables you to estimate future profit and sales or anticipate overall business performance. 

Though forecasting is helpful for business planning, it also comes with challenges. If you know what to expect, you can prepare and benefit from the most accurate insights. 

This guide will cover the challenges of business forecasting and how to overcome them, including: 

• Researching for your forecast 
• Finding the right methods and tools  
• Measuring and analysing data 
• Updating and planning for the unexpected

One of the biggest challenges of business forecasting is compiling the proper research. You won’t be able to forecast your business’s sales and earnings if you don’t understand the demand of what you sell. Going into your forecasting without enough accurate information will make your results shaky and unreliable at best. 

To overcome this challenge, you’ll need to know the workings of the industry as a whole. Market research will help you understand the price points for your products or services, your target audience, and competitors. With this information and data, you can begin to form an idea of how your business might perform over time with the right strategies. 

To get started on your market research, you might want to use tools like Statista, Attest and Google Trends and look at online product or service listings similar to yours. 

On top of that, you’ll need to know how to forecast and the different methods of doing it. Also, research various tools that can streamline your business forecasting to make for more substantial results. 

Once you have sufficient knowledge about your market and what you can expect, you’ll need to put together a forecasting method. Your business forecasting will be disorganised and difficult to comprehend without the right plan and approach. 

There are four main business forecasting methods, including: 

• Quantitative: Best used for short term forecasting, these methods analyse the numbers and data to predict the future. 
• Qualitative: Best used for short term forecasting, these methods analyse the information from market research to predict the future. It does incorporate human opinion, creating potential bias. 
• Time series analysis: Uses data over time and statistical reasoning to predict how time affects the key variable. 
• Indicator approach: Considers key indicating variables and numbers, such as the GPD, to estimate the future.  

When choosing which method, look at your past earning patterns to most accurately help you predict your market’s future. Analysing the past patterns of your business and industry will show you which methods could create the best forecast. 

Apart from choosing the right method, avoid putting your forecasts together manually. Modern tools can save you time and automate the process, but they can create more accurate results. Plus, tools make it easier to analyse and update your forecast.  

For example, you could use tools like Futrli or Intuendi to form and analyse insights for your business forecasting. Plus, modern accounting tools like Countingup will help you predict and track your finances for better forecasts. 

Countingup is a two-in-one business account and accounting app that generates cash flow insights, among other tools. With this information, you can track and analyse the money coming in and out of your business to calculate or track your forecasting progress.  

Choosing the right method and tools will help you organise your approach, but measuring and analysing the data is another challenge of business forecasting. If you can’t understand the data to support your analysis, you won’t create reliable forecasts. Along the same lines, you’ll need to measure and track the progress of your business to measure your forecast’s success. 

If you choose a qualitative approach for your process, consider how bias could reduce the quality of your conclusions. Similarly, be sure to double-check the data you use as support. Quality data will lead to quality conclusions. So, seek primary and reliable sources. Instead of pulling a number from a blog article, find the study it came from to see if the context is credible and relevant. 

Once you create a forecast, you’ll need a way to see if it’s true over time. Say you forecast that your market demand will lead to a 25% sales increase in two years. To determine this, you’ll need to closely track sales and the growth percentage. This number will help you stay on top of the data. 

But how will you determine the connection between sales growth and market demand? It’s essential to create a strategy. For example, you might send out a survey to your customers to better understand their purchase reasoning and track the market demand and how it might impact overall industry sales. 

Change is another challenge of business forecasting. As time passes and markets shift, so will the future of your business. First, when creating your business forecast, be sure to consider unexpected costs or events. Outline possible negative impacts on your business, including natural disasters, political tensions, or financial struggles. With the unexpected in mind, you can better plan for them. 

Also, failing to update your forecast when necessary will make the information inaccurate and useless. So, track your progress closely and check in with your numbers every few months. Put together a new business forecast each quarter or year depending on the variability of your market. 

Financial management can be stressful and time-consuming when running a business, but it’s essential to accurate forecasting. Join thousands of business owners who use the Countingup app to make their financial admin easier. 

Countingup offers features like automatic expense categorisation to help you stick to your budget and find transactions for your bookkeeping. It also offers year-round tax estimates to better predict the future of your business. 

Start your three-month free trial today. 

Find out more here.