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How accurate can business forecasts really be for a small company?
Accuracy depends on how stable and predictable the business is, how much history exists and how far ahead you forecast. Short-term forecasts for steady, seasonal products can be quite reliable; long-range forecasts or new products are much less certain. Always express forecasts with a range.
Ways to keep forecasting honest:
- Compare against a simple baseline, such as last year's figure
- Track error over time
- Update as conditions change
- Account for known events like promotions
External shocks cannot be forecast from history, so treat forecasts as decision aids, not guarantees. Reviewing past forecasts against actual results every month is the best way to learn how far to trust them.
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