So far we have discussed the need for forecasting, the process of building a forecast, and the tools to use in forecasting.
But you might be wondering: how often should I generate a new forecast for my business? My answer is also a question: what is the length of your business cycle? The business cycle is measured from the time you purchase raw materials to the time you get paid by your customer. For example an industrial business’ cycle may be as long as 90 to 120 days while a restaurant’s cycle is typically a week or less. With each turn of the cycle, profit or loss is realized. Hence, the old saying that a restaurant is the quickest way to get rich, and the quickest way to go broke! The shorter the cycle, the faster profits are realized.
Your business cycle is based on the industry you are in. What does the business cycle have to do with how often you forecast? The cycle dictates how fast your business can change. Forecasting is about anticipating how your business will change and planning how you will react to it. The faster your business can change, the more often you should spend time forecasting.