Your Yearly Forecast: How To Predict Revenue and Profits the Easy Way

We’re entering Q4 — it’s time to get serious. Along with reflecting on the successes and challenges of your year so far, it's helpful to prep early for diving into achievement mode once the holiday lull is over.

Your business New Year’s resolutions are calling. While these goals may not all be financial in nature, they’ve ideally contributed to positive revenue growth and profitability. How can you improve upon your forecasting even more for the upcoming year?

Accurately predicting incomings and outgoings is a complex but invaluable process. It can help you make confident decisions about hiring, partnerships, investments and more.

Common Mistakes in Financial Forecasting

Most small businesses use accountants primarily for taxes and compliance, and they don’t often have a data analyst on hand. Thus, there’s no one dedicated to selecting and implementing forecasting techniques. As a result, your team could unknowingly commit one or more of the following common mistakes. 

Engaging in inaccurate or inconsistent reporting

Predictions require extrapolation, and accurate extrapolation can’t happen with unreliable math. To establish a true trend, you need months, if not years, of good data.

It’s tempting to base forecasts on unrealistic sales numbers, perhaps from a period of time that’s not reflective of typical performance. By the same token, if you’re not granular enough with the different rates you charge for different types of sales, you could be using an average that doesn’t tell the whole story. A sale amount is the foundation for a profitable service, so starting with bad data at the start of the client journey can alter your forecast throughout. 

Unfortunately, your team may also be pulling incomplete reports or incorrectly lining up the data they export from too many software platforms. If your data is not accurate or exported differently by different people, there’s simply no way to know where your business stands.

Relying on historical patterns only

An established history of accurate reporting is necessary for identifying trends. However, if you only ever look at numbers through yesterday, you’re skipping over the present to predict the future.

A consistently outdated time frame for reporting is problematic because you find out about inefficiencies after the fact. If your team is chasing its tail in everyday operations, you won’t be able to look beyond yesterday in forecasting attempts. 

To guess what’s going to happen tomorrow, you need to first understand what’s happening right now. You need real-time data. 

Overlooking problems due to lack of visibility

A lack of company-wide visibility is another reason you might not see any issues that crop up in the moment. Leadership needs to have access to every team’s work and communication to catch snags that could impact financial performance.

When project managers don’t share information with customer success managers, for example, they could put client relationships at risk. And if the people who are compiling financial forecasts don’t know these risks are present, their predictions may be off.

Many service businesses don’t have the processes and platforms in place to enhance visibility without adding a ton of manual labor.

Failing to consider the variable of time

When you charge an hourly rate, your billable time data is absolutely vital to predicting profitability. Employee time logs tell you a lot more than how many total hours your team is putting in. They can give you priceless details about utilization. 

The roadblock: 69% of employees don’t track time accurately. Moreover, many firms simply don’t have the tools to connect billable rates to time entry. QuickBooks reports that one in three time-tracking systems is outdated.

These limitations carry over into financial predictions, making it impossible to get a clear picture of daily activity and profitability by client and project.

READ NEXT: Web development firm Comit Developers discovered how key it was to link billable rates with employee time logs. 

The Building Blocks of Accurate Revenue and Profit Predictions

Now that we’ve covered the inadvertent mistakes many business leaders make in forecasting, we’ll look at what you should be doing instead.

1. Choose a fitting method. There are four common revenue forecasting methods. Depending on how many variables you’re analyzing, you may find that one or more methods make sense for your business. While you’ll need to spend some time setting up appropriate formulas and verifying that you have the data to feed into them, sticking to the same method(s) over time will ensure you compare apples to apples.
2. Face the worst-case scenario. Financial forecasting is one area in which it pays to be conservative. While you have stakeholders to answer to, being overly optimistic will only result in unexpected costs and unnecessary worry if your business performance falls short. Strike a balance between optimism and realism by getting your real-time reporting in order.
3. Analyze your variance quarterly. The best way to know if your approach is working is to compare your forecasted and actual numbers. You should do this at least once per quarter. Overestimating revenue and profits could be the result of inaccurate sales forecasting or mistakes in calculating billable time. Underestimation, while a good problem to have, should also be corrected. It may be a sign that your team was more productive than you expected or your client retention increased.

Avoid Money Missteps With a Centralized Solution

If predicting how your business will do still sounds stressful, there’s an easy way to support all four of the above steps: Connect each stage of client work in a single client work management platform. 

Disjointed reports are so common in client-based industries because many business owners try to manage each segment of work using a different tool. Even if you export data accurately from each one, compiling reports that aren’t formatted the same can become confusing and unnecessarily time-consuming. 

Instead, you could manage everything from quoting to project work to client issue resolution and billing in one place.

➡️ Accelo users can make time for important responsibilities like revenue forecasting because they have the power of custom automation on their side.

Get your performance on track — today, tomorrow and as far into the future as you’d like to look. Start your free trial or schedule a demo of the platform.

About the Author

Chelsea Williams is Senior Copywriter at Accelo, where she shares unique insights with service professionals and tells user stories via blogs, eBooks, industry reports and more. She has over 15 years of B2B and B2C writing experience — primarily in tech, sales, education and healthcare. Chelsea is an AWAI-certified Master Copywriter trained in brand storytelling and microcopy.