Cold Weather – Forecasting

The US is experiencing one of its Decembers cold weather blasts.  In the Pacific NW, we hit new low temp records.  The Small and Medium Business environment is experiencing some of its coldest times as well.  Not from an artic freeze but from the legislative lack of understanding regarding what business is and what it will take to really allow growth.  What increases the complexity of a business to be able to forecast budgets, manpower requirements, new product development and growth in general is the inane activities of government and a bunch of academics called economist who have no sense of reality.  The policy decisions being driven by the wrong view of economics and what drives an economy is perpetuating the cold weather that affects business forecasting.

What can any size business do in developing forecast and how is it segmented for growth in any environment or market segment?  One simple and fast method is known as the PEST analysis.  This stands for Political, Economic, Social and Technical.  There are a plethora of examples of this on the Internet but I prefer the KISS principle in all things.  With that I like the to use the relational matrix of PEST to SBSNeR which is Supplier, Buyer, Substitutes, New entrants and Rivalries.  The idea is to pull your team together and put on your Beany* copter hat and do some brainstorming.  As far as the matrix design, put your PEST on the top and your SBSNeR along the left side.  Now begin asking the simple questions about each box in the matrix to get the process engaged.  Expand your questions as the matrix is further explored.

Example questions could be:

1. What is happening with deregulation, protectionism and subsidies and how does that affect the industry the business entity is involved in?
2. What are the local, national and international economic shifts?
3. What are the social shifts related to industry, customers or suppliers?
4. What technologies are affecting the industry, how and why?

Use the results of this exercise to look at the business’s market, product set, personnel and financial model.  Then consider the results that need to be addressed in each area to meet the objectives that are defined as growth areas for the business.  Hopefully your primary growth target is increased cash flow.

An additional influence in forecasting is the question: what will happen with inflation?  We are all concerned about what the political powers will do to manipulate this indicator.  Professor Rothbard states, “Inflation, distorts that keystone of our economy: business calculation.  Since prices do not all change uniformly and at the same speed, it becomes very difficult for business to separate the lasting from the transitional, and gauge truly the demands of the consumers or their cost of operations.”  It is a challenge for business executives, especially in the small and medium business environment, to assess what this means in relationship to supplier price increases, cost of living adjustments for employees, demand by customers for price adjustments and maintaining a consistent Net Margin that will maintain positive cash flow.  Determining the influence of inflation is about looking at the complete picture of the living entity, the business, and seeing into the future the best we can.  Add this component to the PEST analysis then readjust all the variables to establish what are the goals set as growth factors for the particular business.

Forecasting is not the crystal ball activity many make it to be.  It is a methodology that is affected by numerous variables and therefore, a lot of work.  The lack of time and the value proposition of forecasting becomes the limiting aspect to accomplishing it in a small and medium size enterprise.  Yet, paying attention to it addresses several valuable business metrics that affect market knowledge, product alignment to the market and the affects of policy on future execution.  Properly done forecasting will heat up the incentive to execute to growth.

A Little Political Rant

It never ceases to amaze me that those that are in the trenches have a clear view of what it takes to restore jobs and allow individuals to develop real wealth.  The issue is philosophical.  What has happened over the last 50 years?  Simply put; instead of those elected to office really listening to the constituency, these elected persons rely on academics who for the most part have no true scientific or moral basis to influence policy that then affects the lives of individuals and the lives of businesses which are also living entities.  It is unknown to most of us that the Union for Radical Political Economics is 1,200 members strong that are academics that have direct influence on policy, especially in this present Congress and Administration. 

This organization believes and argues for the abolition of corporate profits and the elimination of pricing on eighty percent of the goods in the American economy.  We see this influence now in the attack on corporations and the interference by government in free-market exchange through Agency rules and regulations.  This is done not only at the national level but at the State level as well.  The assault on small and medium business is felt through the trickle down of egregious Federal, State and Local Agency rule making that set encumbering regulations and fees.  The constant barrage of incongruous business legislation and regulation seriously impacts how small business executives can forecast when they are wondering what is the next shoe that will drop.

The critical issue is that small and medium business owners need to be involved in the legislative process at some level.  Joining associations such as the Small Business & Entrepreneurial Council (www.sbecouncil.org) can inform business executives of national issues that will affect the elements of forecasting.  Contacting your State Legislator or County Commissioners will give one insight into local issues being addressed that will affect the business entity. 

With the fact that policy will affect business, every business needs to be involved in the political process.  Know who your elected officials are and communicate with them.  It is the responsibility of the business executive to do this for the sake of the living entity, the business.

*For the younger generation see Beany & Cecil cartoons by Bob Clampett