Strategic Forecasting Techniques

Contrary to what you might think, the most important thing about my cash flow forecast isn't accuracy. It's conservatism. As modelers, it's only natural to obsess over perfection. Accuracy. We want our models to be right because they're the playbook for the business. Sadly, no amount of XLOOKUPs or Dynamic Arrays can help us predict the future. The future, by its very nature, is uncertain. A better approach is to build in buffer. Downside. Uncertainty. You don't hear businesses talk much about unexpected cash windfalls. It's always the other way around: Shortfalls. A customer didn't pay on time. A project got pushed back. An expected bid went to a competitor. But, our costs (for the most part) are fixed. Those are due no matter what. So when you're building your cash model, I would propose building everything with a conservative assumption: - Collections come in later than expected - Expenses go out earlier than expected - All collections are given a [30%] haircut (you pick a number) - A "cushion" line for what else could go wrong (maybe another 10% of all activity) Because what's the true, actual goal here? To sleep at night. We create companies that hopefully generate enough margin to pay people for their work (and theoretically make a net profit too). So forecast everything conservatively. Then look at the big picture. The pain points. Build a plan for the downside. In the end, the true power of a conservative cash flow forecast lies in its ability to help us navigate uncertainties with confidence. By contemplating the unexpected, we're building a foundation for a resilient, sustainable business, and maybe (just maybe), getting a little sleep at night. 𝙏𝙝𝙞𝙨 𝙢𝙞𝙜𝙝𝙩 𝙝𝙚𝙡𝙥... Grab my "Doomsday Cash Runway Template" to help get you started → https://bit.ly/48TUsP8

Do you have a DOOMSDAY version of your forecast? 😱 If not, you may be caught off-guard if things don’t go according to plan Scenario planning is not a nice to have when forecasting… it’s a MUST have. The future is filled with uncertainties, and your job is to keep track of what your business can look like under each scenario so that you can plan accordingly. But how do you prepare different versions of your forecast? Here are the 4 most common ways that I see 1️⃣ CREATING DIFFERENT WORKBOOKS This is how I see most people do scenario planning. They have one forecast…and then another for a rainy-day scenario. Or maybe they have one version that they use for planning (conservative), and one that they use for fundraising (aggressive). This method works for 1 reason - it’s simple to set up. Just take your workbook, make a copy of it, and change all of your inputs. There’s just one problem…this becomes a nightmare to manage, as you now have multiple versions to update. That’s why I’m a much bigger fan of option 2… 2️⃣ DYNAMIC DROPDOWNS What if you had 1 workbook with a simple way to toggle on different scenarios? Now you have only 1 source of truth, but that 1 source of truth can be transformed for different scenarios as you select your dropdown. I love this approach because it’s not too much work to set up once you have a proper lookup formula in place *(note: you are forbidden from using VLOOKUP here, or anywhere else).* 3️⃣ SCENARIO MANAGER This is a cool feature in Excel that few are aware of. Rather than editing just one cell, you can edit however many cells you want with a predefined set of inputs. Simply hit Data > What-If Analysis, and select Scenario Manager 4️⃣ DATA TABLES Want to take your scenario planning to a new level? With Data Tables, you can view the outcome of all scenarios in 1 VIEW 🤩 I love this approach because it gives me strong visibility in all scenarios, rather than forcing me to toggle ot each scenario. The only limitation is that it can slow down your workbook, so select “partial” or “automatic except data tables” in your calculation options === So which version is best to use for scenario planning? To me, it doesn’t matter which you use…what matters is that you keep track of all scenarios and review your performance as close to real time as possible - the quicker you get insights, the quicker you can take action! How do you do scenario planning? Let us know in the comments below 👇

"Should we hire or should we cut?" is a question I'm hearing often from small business owners right now, which is fair given the mixed economic signals. Some clients are seeing their best quarters ever. Others are watching pipelines thin out. Everyone seems to be asking, "How do we plan for what we can't predict?" This is where scenario planning becomes your survival tool; not just hoping for the best, but modeling the reality of different futures. Here's what we walk our clients through: 🌳 The Growth Scenario: For example, if revenue is expected to be up, we’re looking at potential team expansion and higher overhead. Looking at what that does for cash flow given the changes to expected expense changes. 🌱 The Steady Scenario: Where flat growth is expected and we plan to maintain current team, we’ll want to optimize margins and prepare for inevitable per team member increases. There will likely be some percentage increase YOY but we expect the core costs to stay the same. 🍃 The Contraction Scenario: On the other hand, if revenue is expected to go down, we want to look at strategic cuts that allow the team to run efficiently while preserving cash. For our clients, this is usually a mix of team, professional services, and travel. We also want to ensure that the resources kept are used efficiently. Each scenario gets its own financial mode where we map out cash flow, runway, and break-even points for 3, 6, and 12 months ahead. The command center for this? Fathom. We've been using Fathom since the beginning of Little Fish Accounting and it lets us build the scenarios in real-time with clients, showing exactly how each decision ripples through their financials. No more spreadsheet gymnastics or gut-feeling guesses. Ultimately, the founders who survive uncertainty aren't the ones with crystal balls—they're the ones with clear models and decisive action plans. And we're glad to be the builders 🧱

What We Know, What We Think We Know, What We Don't Know You don't have to be a tariff expert to plan during uncertain times. It just helps to review what you know, what you don't know, and what you think you know. Here are a few examples and ideas that I thought would be helpful. >What We Know - For sure? Not much. Death and taxes. - Day to day, the underlying forces affecting the economy could change quite dramatically. - Our customers might adjust to these changes with their own behavior changes. - What our customers desire long-term is usually very slow to change (higher quality, faster time to value, lower prices - for most companies) - When consumers are worried, they tend towards safety. That could mean freezing, it could mean only brands they trust, or it could mean looking harder. Doubly so if the basics are not covered. >What We Don't Know - We have no idea what taxes, tariffs, or policies will be in the next few minutes, months, and years. - We don't know which of our forecasts will be the right ones, yet we still learn by forecasting. In these kinds of scenarios, it's best to do a few things: * Talk to your customers. Literally, get out of your office. Everyone in marketing and merchandising. Go out on the street. Get out of your own head and your own way. Shop in your stores. Shop in department stores that carry your goods. Get some fresh ideas. * Your management team must have more than even two forecasts. This is something that AI can help you with, if you truly model it and understand what assumptions can change. * Make friends with your Financial Planning and Analysis (FP&A) team, to get deeper on the business beyond financial metrics, and into the assumptions behind those metrics. * What are some of those assumptions that should go into your various models? - Average Unit Retail (AUR), but not just this -- a deeper assumption behind AOV is category mix, what your customers are buying and why. This can have a huge impact on your margin profile if consumers migrate away from your more profitable items. - Traffic: people walking in the door - are they even shopping or are they replacing? - Conversion rate: are customers pulling the trigger, deferring or replacing after shopping? - Discounting: What margin profile is it taking to get the sale All businesses deal with uncertainty, we just fool ourselves into believing we can be certain. In uncertain times, it's often good to diversify and place multiple bets - sometimes new ones, that can carry you if one of your current lines doesn't follow a trendline.

🚨 Uncertainty is near an all-time high 🚨 Since 1985, the U.S. Federal Reserve has tracked an uncertainty index—and it's now skyrocketing, fast approaching its pandemic-era peak. But you can THRIVE in these conditions. Here are 8 ways to do it: 🔹 1. Uncertainty Matrix – Map out what’s certainly known, certainly unknown, unevenly recognized in your organization, and critical blind spots. 🔹 2. Scenarios – Develop a few truly distinct scenarios (not just based on your company’s outcomes, but on market shifts). What actions can you take today to thrive in each future scenario? 🔹 3. Portfolio Plan – Assess the risk level, risk type, and maturity of your investments. Think of it as a diversified portfolio—how will it hold up in different market conditions? 🔹 4. Platforms vs. Products – Shift from rigid products to flexible platforms. Netflix, for example, is a platform that can evolve with the market—traditional broadcast networks do not. 🔹 5. Capture New Markets – Disruptive events create major opportunities. Fintech boomed after the financial crisis—where’s your industry’s next opening? Consider all dimensions: goods companies can grow into non-tariffed services, you can expand geographically, and more. 🔹 6. Agile Planning – Static, annual strategic plans don’t work during high uncertainty. Instead, focus on dynamic strategies that separate fixed priorities from adaptable tactics. 🔹 7. Reduce Inter-Dependencies – Create modular, flexible value propositions that can have both more agility and lower costs. 🔹 8. Put Customers First – Your customers’ Jobs to be Done remain constant—use them as your North Star for strategy, cost reduction, and option development. 📚 Want to go deeper? Our materials on FutureCasting and the book Rogue Waves address approaches 1 – 4, our book Capturing New Markets tackles point 5, our book The Innovative Leader focuses on point 6, and our books Costovation and Jobs to be Done concentrate on points 7 and 8. Dig into them or get in touch for a discussion. Uncertainty = Opportunity. Seize it!! 🚀 #Leadership #Strategy #Innovation #JobsToBeDone #Growth #Agility

Planning for the Future—by Remembering We’re Probably Wrong About It In April 2001, Donald Rumsfeld sent President Bush a short memo titled “Predicting the Future.”
The attachment—Lin Wells’ reflection for the 2001 Quadrennial Defense Review—runs through each decade of the 20th century, showing how the world’s “obvious” threats, alliances, and economic realities flipped over and over: * 1900: Britain eyes France as the perennial rival. * 1910: France is suddenly the ally; Germany the foe. * 1930: “No war for ten years,” say the planners—nine years before WWII erupts. * 1980: The U.S. is the world’s greatest creditor; by 1990 it is the greatest debtor. * 2000: Few people have even heard of the internet a decade earlier. Wells’ punch‑line is timeless: the future will look “very little like we expect, so we should plan accordingly.” What does this mean for leaders today? 1. Build options, not predictions. Strategy documents that lock us into a single scenario age quickly. Create portfolios of moves—R&D bets, talent pipelines, acquisition targets—that can be dialed up or down. 2. Watch weak signals. The events that redefine markets often start at the periphery: a hobbyist forum, a policy paper, or a customer workaround. Encourage your team to surface anomalies instead of smoothing them out. 3. Invest in organizational agility. Processes that can flex (modular tech stacks, cross‑trained teams, adaptive supply chains) beat rock‑solid but rigid efficiency when the unexpected arrives. 4. Stress‑test culture, not just numbers. Ask: “If X happens tomorrow, will our people share information fast, make bold calls, and still trust each other?” My Takeaway As someone who leads in heavy manufacturing—an industry not known for quick pivots—I keep this memo close. It’s a reminder that uncertainty isn’t a bug in the system; it is the system. Our job isn’t to predict the next shock but to ensure we can absorb it, learn from it, and move forward. *Thanks to Jonah Goldberg for recommending Lin Wells’ memo. #Leadership #Strategy #Resilience #FutureThinking

There’s been a lot of speculation in the past two weeks following the election about the incoming administration and the changes we’re likely to see in the workplace and labor market. I've been reflecting on what these shifts could mean for the #futureofwork — and the potential implications are both complex and concerning. We may be entering a period of significant policy changes, including labor regulations, immigration, and workforce classification. Among these, one stands out for its sweeping potential impact: large-scale deportations and visa restrictions. This graph from The Conference Board speaks volumes, underscoring the critical role of immigrant workers in sustaining the U.S. labor force and economy. Policies that remove millions of workers could have severe consequences, such as: 1️⃣ Labor Force Shrinkage: Deporting a large number of workers would significantly reduce the U.S. labor force, exacerbating labor shortages in industries like agriculture, construction, and hospitality—industries already struggling to fill roles. 2️⃣ Economic Contraction: Fewer workers mean less productivity, reduced output, and slower economic growth. The data clearly shows that large-scale deportations would directly impact GDP, with sharp declines that the economy would struggle to recover from. 3️⃣ Pace Matters: Sudden, mass deportations would cause immediate and significant economic harm. Even a slower approach wouldn’t shield the economy from lasting damage to labor force participation and growth potential. 4️⃣ Policy Intersections: This highlights the interconnectedness of labor policies and economic outcomes. Policymakers must consider how such measures could unintentionally worsen labor shortages, drive inflation, and destabilize workplaces. To business leaders, this is a moment to engage your workforce. Open communication about potential changes builds trust and fosters resilience in times of uncertainty. As we prepare for what’s ahead, it’s crucial to have informed, data-driven conversations about how policies will impact businesses, the economy, and the workforce. Let’s ensure the decisions we make support a stable, sustainable future of work. What are your thoughts? How can leaders balance these changing economic realities to ensure a stable, sustainable workforce? I would love to hear your thoughts!

Effective demand forecasting requires tailoring approaches to different products. Commodities like toilet paper can be forecasted with very low error rates, but new product launches are another story. Just look at early iPhone launches – demand was underestimated, leading to empty shelves.  Two key practices to stay ahead:  1️⃣Leverage Historical Data – Reference demand curves from similar past launches to get closer to accurate forecasts.  2️⃣Use Advanced Data and AI – Incorporate everything from demographic trends to economic conditions. Today’s AI and predictive models can integrate hundreds of inputs, providing insights that can keep your business agile in a dynamic market.  The data and tools are out there – use them to stay adaptable and fuel better forecasting.  #SupplyChain #SupplyChainInnovation #Forecasting

Forecasting is hard. Finding analysts who do it well is even harder. Too often, I see forecasting either: 1. Overcomplicated: Applying complex ML models just to predict a moving average (?!), or 2. Oversimplified: Running regressions without understanding what the coefficients even mean. I personally use 4 forecasting methods to model a range of outcomes, from conservative to aggressive: 1. ARIMA - Smooths time series data, w/o seasonality adjustment. 2. SARIMAX -  Like ARIMA, but accounts for seasonality. Likely to be the safest and conservative forecast. 3. Prophet -  Captures non-linear trends and seasonality. Often the most accurate. My favorite model for growth forecasts. 4. Manual Projection – aka Olga's secret, overly complicated manual projection. I plot every available metric’s historical D/D, W/W, M/M, and Y/Y % change and analyze their: (a) correlations and relationships (b) seasonal thresholds. It takes ages to complete, but it delivers the most precise forecast. If done right. If I can account for everything the teams are doing. Which is rarely the case. 😬 When reporting, I typically present only Prophet alongside my Projection, keeping ARIMA and its variations for myself as checks. There are many time series models out there: MA, AR, ARMA, ARIMA, SARIMA, Exponential Smoothing, VAR, and more. Forecasts are fun.

I’ve built companies through 3 major recessions, including the Great Financial Crisis. I've seen the collapse of Bear Stearns, Lehman Brothers, and many others. If Trump doesn't change course, that is where we are headed... So, how should we react now that the US is reshaping the global economic order and triggering a self-inflicted recession?  The playbook for navigating the new tariff regime is straightforward. The fundamental characteristic of this new world is uncertainty. And Profitable Efficient Growth (PEG) is the proper antidote to uncertainty. Here's how executives can successfully navigate the next 9 months (broken out by MACRO, BUSINESS and MINDSET lessons): MACRO 1. Review your supply chain and understand component pieces and what exposure you have to various suppliers and customers. 2. Review your customer base by geography and understand your exposure, not just for tariffs but for retaliatory behavior impacted by country-specific animus. 3. Understand currency exposure and estimate impact of dollar-denominated contract erosion. BUSINESS 1. Improve the frequency of your forecasting and ensure you’re forecasting cash, expenses and revenue on at least a monthly basis. 2. Develop a clear POV on fixed vs variable costs and leverage non-FTE hiring for maximum flexibility in case things go poorly. 3. Review your messaging to illustrate why your product is essential in a downturn. Enable your Sales and CS teams with talking points so they can lean into price and budget when the objection arises. 4. Make growth investments but ensure they're tranched. Avoid more than 2x-ing any growth investment. Layer in 1.5x investments, monitor for performance, and then invest again. 5. Ensure you're not over-extended. Leaning too far into growth on the expectation that things will go up may create financial jeopardy later this year. MINDSET 1. Leverage healthy mindset practices to ensure you remain calm and clear including meditation, exercise, and visualization. 2. Understand: Every crisis is an opportunity for the confident and those willing to lead. 3. Pause and ask yourself the question, “How is this a huge opportunity for our business?”. Journal what comes to you from a focused session. 4. Project clarity and confidence to your team. Let them know your organization has intentionally been designed to weather storms like these. We just got out of the post-COVID tech recession. These lessons should be fresh in our minds but they bear repeating. The folks that lectured us that we should stop thinking about margins and profitability were premature. We all need to be smart, responsible and prudent. This doesn't mean fearful. And this doesn’t mean we shouldn’t try to grow. But it does mean it’s not the time for foolishness. We need to understand our market and our exposure. We need to design our businesses for anti-fragility. Our bets need to be sized. And we need to find the opportunity in the chaos.