Business Forecasting in a Crazy, Mixed-up World
BY Kasey Wehrum
Three entrepreneurs share their challenges, frustrations, and strategies for business forecasting in a recession.
It's an old joke: "If you want to make God laugh, tell Him your future plans." Of course, there's not a whole lot to laugh about for most business owners these days. They would settle for just a clearer sense of what lies ahead. Planning a budget, managing inventory, and knowing when to hire and fire employees are never easy, but a dysfunctional economy has now made forecasting all but impossible. Inc. spoke to three business owners about their forecasting struggles and how they are coping with uncertainty. For one of them, it gets down to monitoring sales of paper clips.
Rick Israel,co-founder of Complete Office, a Seattle supplier of office products
No one knows how bad the economy is going to get. We just knew it would be harder than in prior years. We budgeted for slight growth but factored in the probability that our business would go backward 10 to 12 percent. The idea is to gear up our sales force and go out there and take more market share.
I've always felt that the office supply business is a pretty good bellwether of the economy. If people are buying lots of supplies, then businesses are doing pretty well. If they are buying new office furniture, then they are doing even better. Our furniture business has dropped by about half, but right now, we're not seeing huge declines in supplies. Supplies are like food: People still need to eat, and businesses still need to run copies and go through toner. But we are starting to see a trend of businesses buying just the things that are absolutely necessary. If you want a fancy binder or a cool new pen, you're not getting it.
Bryan Zaslow,CEO of JBCStyle, a New York City firm that provides staffing for the fashion and retail industries
My accounting team and I are sitting here dumbfounded trying to properly budget. Typically, we prepare our budget in the beginning of the year based on last year's numbers. Maybe we'd revisit it halfway through the year. But 2009 is really about revisiting our budget monthly. Two or three months ago, I would never have predicted a strong January, but ours was up over 100 percent. We negotiated our fees with clients, and competitors weren't willing to do that. February was also surprisingly strong. But March could be absolutely atrocious. Right now, we have about 70 positions to fill for our clients. A year ago, we'd be working on 200 to 250.
Planning for the worst is the most logical course of action. However, I think that negativity has to stay within the executive team. Too much of it puts everyone in a funk. So, my partner and I try to push the positives, like our strong beginning-of-the-year numbers. We try to keep the sleepless nights to ourselves.
Dennis Brown,CEO of Logistic Dynamics, an Amherst, New York, logistics coordinator
In the past, business may have been good or bad, but it was much easier to project what your sales, your revenue, your margins, your overhead were going to be. We could predict the business we would do, because our customers normally have a good feel for their projections. But now, they've got clients pushing back orders and canceling contracts, so they don't know what to expect. That trickles down to us. The more vague our customers are with their projections, the more difficult it is for us to make our projections.
For the first four and a half years of this business, we'd have the occasional customer who ran into a slowdown. Now, that unstable group is much bigger. This year, we are a lot more conservative in our methodology because of the unknown.
We've tightened our credit terms to our customers. We know this year, somebody significant is going to file bankruptcy on us. Statistically, it's going to happen. Therefore, our forecasts have to be more conservative, because we need to be able to subsidize that kick in the pants we know we are going to get. It may be only $30,000, but it may be $300,000. That would hurt bad. We're hoping it's $30,000.