We can”™t give you specific numbers on what”™s in our pipeline. Don”™t know how that relates to what we need for business in order to be healthy. Seems too complicated to try and put it all together.
Thoughts of the Day: Knowing where the business stands numerically is a finance responsibility. Keeping track of the pipeline isn”™t all that hard; it just takes a systematic approach and a little cooperation from everyone. New business is only one part of the pipeline. Knowing how it all fits together will give you peace of mind if things are on track and an early warning system if they”™re not.
Knowing where the business stands numerically is a finance responsibility. The finance department exists to keep up to date on all financial transactions, to integrate, interpret and report on data, and to provide early warning if the business is in trouble. Few small businesses benefit from having a fully functioning finance department, but those that do tend to perform significantly better than those that don”™t.
In reality, most privately held small businesses can”™t afford a chief financial officer whose job it is to analyze and predict. Instead that duty falls to the small-business owner who is usually unprepared for the forecasting role and who lacks the time needed to consistently complete the tasks required.
Keeping track of the pipeline isn”™t all that hard, it just takes a systematic approach and a little cooperation from everyone. Because it takes guesswork and coordination between several departments, even companies that are good at tracking existing expenses struggle to predict the future. And yet forecasting is not that hard to do if a system is set up.
Build a spreadsheet for salespeople to document activity by prospect, from initial contact to generating proposals to closing and implementing new business. Assign a probable close value to each stage, from a very low 1 percent to 5 percent for prospects just entering the pipeline, to significantly higher close ratios for prospects receiving proposals and negotiating terms. Multiply each prospect”™s total value times the assigned stage probability, then add up all probable deal values. Estimate the month in which each deal will close and you have a prediction of new business sales by month. Add time to collect payment and you gain insight into cash flow from new business.
Better yet, take a look at some of the recent marketplace entrants in the sales forecasting business. There are some easy-to-use tools that can help any sales team manage prospects and report on probable pipeline value.
New business is only one part of the pipeline. Ask the people who are responsible for managing existing accounts to go through the same exercise of predicting future activity with current customers. Make sure they include estimates for attrition, since clients tend to fall away over time. Improve accuracy by looking at historical trends. If your company offers more than one product or service, make sure someone is in charge of offering clients complimentary services and predicting how that will turn into additional revenue over time.
Knowing how it all fits together will give you peace of mind if things are on track and an early warning system if they”™re not. Get all the departments that touch your prospects and clients involved in reporting on what the upcoming three to six months looks like. Then pull all those reports together into one picture. Compare that forecast to the revenue you need to break even, and make decisions on whether to ramp up or slow down sales and operations or if you have things just right and should just keep going as is.
If this seems like a lot of work, consider the alternative. Running the business blind, hoping that work will come in and worrying that it doesn”™t is no way to live. Figure out a system of reports and people responsible for turning in information. Build confidence in that system by practicing. Have the peace of mind that comes from knowing you have a good handle on the future.
Looking for a good book? Try “60 Minute CFO, Bridging the Gap Between Business Owner, Banker and CPA” by David A. Duryee.
Andi Gray is president of Strategy Leaders Inc., StrategyLeaders.com, a business-consulting firm that teaches companies how to double revenue and triple profits in repetitive growth cycles. Have a question for AskAndi? Wondering how Strategy Leaders can help your business thrive? Call or email for a free consultation and diagnostics: 877-238-3535.
