Is it time to reforecast?

Is it time to reforecast?

I was sitting around a table with a few entrepreneurs last week and after we got footy, property prices, online shopping and what a dope Gerry Harvey has been out of the way, the conversation naturally turned to business planning.

How the hell do you forecast in this environment? Do you reforecast? Do you stick to the budgets that you have set? How do you go to your board and tell them you have changed your mind and present them with a new plan? I explained my challenge.

My company, Private Media, is in the middle of an aggressive expansion plan and we need a bit of capital to fund growth.

Now, I am not surprised the market would crash and scrape loudly along the bottom in the middle of our capital raising. When I started SmartCompany the GFC storm blew in. When we launched StartupSmart the economy was in turmoil. We’ve launched Property Observer and the property bubble threatens to burst into a sodden, soapy mess. So what? We love a challenge.

But not only are times tough. Our industry – the media industry – is in complete chaos and as it melts down, it reveals new opportunities.   So given all that, how the hell am I meant to do an annual plan?

The idea of sitting down every May and doing a plan for the next 12 months is an anathema. For a start, the marketplace doesn’t operate according to lunar cycles. And neither does my brain. When an opportunity presents itself, I want to grab it whether it is in the business plan or not.

What I prefer is this, I told my mates. When I can see my recent strategic plan working and I can judge that new projects are going well and the existing business is performing better than budget, I do my next strategic plan. This might only be seven months after my last one. Or I might do an update on a strategic plan just to keep things rolling along.

The strategic plan is really a future scenario that I want to achieve and then I develop a tactical plan about how I get there. I call the tactical plan a “Framework for Growth”, which sounds very fancy and I am sure impresses my board. The framework for growth also includes risk scenarios, time lines and the resources required to scale up, as the business needs to be systematically examined when a new plan is put in place. That, of course includes scaling up or down.

The problem I have is that my board doesn’t like me to reforecast. Once a budget is done, the management accounts are set up, then that is it for the year. This has meant explaining in the accounts why costs are up for new projects which have not been very satisfactory. This year we introduced a new line for new project costs that sits above the EBITDA. That worked okay as we could show that we would have exceeded our budgeted EBITDA if we hadn’t added new costs.

I asked PwC partner Karen Crawford what the majority of private companies do in this situation. She says some keep the original budget but run a reforecast column so they can compare back to the budget and examine the reforecast. But she says lots of private companies who do not have to report to the marketplace simply do a complete reforecast and dump their original budget.

Now, a part of me would quite like to do that. But I am not sure that’s such a good idea, as it is too easy to move the goal posts instead of busting your gut to reach the original forecasts.

I think for the next year I will stick to rolling strategic plans, the fancy framework for growth and putting in a new project costs line. If I have to reforecast down, then I will add the extra reforecast column but keep my budget.

Karen approved. But whatever you do, she warns, make sure there is excellent qualitative commentary so the board and shareholders clearly understand why the shift is taking place, whether upwards or downwards.

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