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Can forecasting help SMEs prepare for the future in uncertain economic times?

looking ahead using binocularsOur regular followers will know that we generally advise business owners to revisit and revise their plans and forecasts over the quiet Christmas period and to give some thought to setting goals for the coming year.
In the aftermath of the events of 2016 many will have found it harder than usual to see the way ahead given the uncertainties surrounding the economy both at home and in the wider world.

Predicting the future means understanding where you are and knowing what resources you have

Reviewing a business’ performance over the previous year is undoubtedly a worthwhile exercise for establishing its current position, including identifying any weaknesses in your financial position as well as those systems that should be improved.
A business that has existed for some years will have experience of a variety of trading conditions and how they were overcome to use as the basis for analysis.
It is also likely to have an established network of suppliers and clients/ customers for gathering information about options including sources of finance. Depending on the goods or services it supplies it will at least understand the competition it faces and be aware of the demand and future trends.
The relatively new SME will not have quite the same level of experience and information, although hopefully it will at least have carried out research into demand, likely customers and how to market to them, as well as having identified the level of investment needed.
Whether new or more established, both can use the techniques of a SWOT Analysis to identify their Strengths, Weaknesses, Opportunities and potential Threats to clarify their current position in an organised way and identify the So WHAT actions that arise from a SWOT Analysis.
Please refer to the K2 Knowledge Bank for more on SWOT Analysis and how to get the most out of them:
This preparation work will help with setting the following year’s goals.

The unanswerable questions and being prepared

The major problem facing all businesses at the start of 2017 is, of course, the economic uncertainty surrounding the possible actions of a new US President and the lengthy process of negotiating the UK’s exist from the EU.
crystal ballForecasting for a business against this background is certainly going to be tougher.
Goals will need to be set that make allowances for best and worst cases, regardless of whether a business is local or an exporter.
Absolute knowledge and control of cash flow, sales, invoicing and comparing monthly management accounts with the forecast as a regular review is likely to become imperative.
If possible, ensure there are at least some financial reserves to deal with the unexpected.
While it is plainly foolish, even if it were possible, to forecast the future in any detail, especially now, there will undoubtedly be unexpected opportunities as well as shocks.
Businesses will need to cultivate agile and flexible cultures, systems and processes to be prepared for both the opportunities and potential hazards of surviving and flourishing in the current economic climate. Courage and nerves of steel would probably help also.

Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

How to identify new opportunities

SWOT analysis diagramIt is one thing to spot a new business opportunity but quite another and much harder to identify whether it is the right one to pursue.
Identifying and exploiting opportunities can depend on the culture within a business and one way to find out is to look at the suggestion box.  Having visited many businesses over the years as a turnaround and rescue advisor I have always made a point of inspecting them and never once have I found a suggestion in them which suggests that everyone has given up on initiatives or more likely no longer believe management will listen.
That is not to say that a business cannot or should not solicit ideas from staff.  But wherever new ideas are generated it is important that a business acknowledges them and has a process for considering and reviewing them.
The business’ SWOT analysis is often a useful reference point because it ought to identify opportunities via its identified strengths and, equally important, weaknesses so it knows what not to do.
The critical aspect of this process of review and assessment, however, is to be realistic about the ability of the business to act on the opportunity. What impact will executing the new opportunity have on the existing business? What are the investment resources that might be needed both financial and in staffing? Does it fit within the current business and how far does it challenge the current business model?
An example
A retailer with a chain of shops identifies an opportunity to sell a new range of goods to existing customers through its stores or perhaps identifies a new segment in the marketplace.
Boots the Chemist entered the DIY market in the late 1980s through its acquisitions of AG Stanley and Payless DIY. AG Stanley’s two high street retail DIY chains FADS and Homestyle were a complete disaster and after many years of losses Boots wrote off £180 million and paid Jon Moulton’s Alchemy millions to take them off its hands. Boots’ other venture Payless DIY was merged it into Do It All owned by WH Smith as a 50:50 joint venture. Within 10 years this became an even bigger disaster with Boots writing off £312 million when it sold Do It All to Focus DIY.
While the growth of home ownership in the 1980s and 90s offered an opportunity to exploit the growing DIY market, was it appropriate for Boots as a chain of chemists to enter the DIY market in terms of both its core market and its management capability?
This illustrates some of the strategic considerations that need to be looked at with each new opportunity.  It includes assessing the competition and whether the new product or service is being offered to existing customers or to a new market segment. Consideration needs realism about capabilities as well as the resources needed and the challenges ahead. It also needs an appreciation of the opportunity cost, that of diverting time and resources away from the existing business
Before a good idea becomes a financial disaster, there are a number of useful tools for assessing opportunities. Here are a few that might be worth using: Porter’s Five Forces was developed by Michael Porter as a framework for industry analysis of the five competitive forces that shape strategy.
Boston Matrix diagramThe Boston Matrix is a growth-market share model developed by Boston Consulting Group to help businesses analyse their portfolio of businesses and brands by categorising them into one of four areas based on market share and market growth to assess their potential.
The GE-McKinsey nine-box matrix was developed by McKinsey & Co to help prioritize investments in business units.

Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Strengths, Weaknesses, Opportunities, Threats – SWOT, So What?

business improvement working digitallyInvestors, banks and advisers often ask clients to carry out a SWOT analysis.
But a SWOT analysis is meaningless unless the business is clear about its purpose and intends to arrive at a series of actions to be taken as a result.
While it is perfectly acceptable to use a SWOT analysis as part of a business review, all too often it is an overview that doesn’t help anyone.
(image courtesy of Pixomar at
More helpful are the insights that can be gained from a close look at different aspects of a business.

Here’s an example

SWOT analysis diagramA business might choose to analyse its process from production of a product through to delivery.  The SWOT analysis may reveal a Strength in producing consistently good quality products.
However, when it comes to delivery it may identify specific issues such as poor labelling or packaging that doesn’t reflect the quality of the goods, or failed deliveries because the customer isn’t in to sign for the goods which both might be classified as a Weakness due to poor service quality.
Delving deeper will produce actions that can be taken to improve these, such as changing the packaging and couriers.
It could also mean looking more closely at the customer service process or considering setting up a tracking system that customers can use to find out delivery date and time.
This example focuses on improving the customer experience and reinforcing the business’ reputation for quality:  great goods, in good packaging, and delivered on time. The analysis is used to reveal the Weaknesses but the key is to have an action to do something about them.
When looking at the SWOT items it helps to look at them through the customer’s eyes so that actions benefit the customer, as well as the bottom line.
Rather than wait to be asked for a SWOT analysis, they can be carried out regularly. It is useful to focus on one aspect of the business at a time but treat the review as part of normal business.
Great businesses do this all the time and simply call it Continuous Business Improvement.