Why financial forecasting doesn't always work

Accounting Manager Lisa Kennedy on the potential pitfalls involved in financial forecasting

Financial forecasting, which is a fancier term for budgeting, can be a useful tool for businesses. It is a process that involves using historic data and estimates to determine inflows and allocations of resources over a period of time in the future. Practically speaking, a financial forecast provides information that enables business owners or managers to identify potential risks and cash shortfalls, provides a benchmark against which future performance can be measured, and assesses the financial viability of a new business venture.

However, there are many cases where the benefits of financial forecasting aren't achieved. Be sure to follow these tips so that you, and your business, get the most out of your financial forecast.

1. Identify the type of forecast you need

Before you begin developing a budget, you should understand why you need one and what outcome you want to achieve. Sometimes financial forecasts are required by third parties, such as lenders and investors, who want to see a full set of future-oriented financial statements (balance sheet, income statement, cash flow statement). In other instances, internal forecasts are prepared by business owners to focus on one specific area - in most cases, to determine whether they have sufficient cash funds to cover planned expenditures. Forecasts can be prepared using any time period including monthly, quarterly and annually, so you will have to decide which option will address your needs and goals.

2. Be realistic

Business owners have a vested interest in their company and its products and services. This can sometimes mean they are likely to overestimate future sales, especially for a new product where historical data doesn't exist. For this reason it is important to take a step back and develop realistic expectations. Industry trends and market statistics should be researched and will help provide you with reasonable expectations for inputs such as selling price, number of units sold, and expected growth. A sensitivity analysis will allow you to see how the forecast will change as a result of increasing or decreasing various outputs and is helpful if you want to see the outcome under different scenarios.

3. Support your estimates

All too often, people do not conduct enough research or have enough support to substantiate their estimates for expenditures. Since the purpose of a financial forecast is to predict future results, it is important to be as accurate as possible when estimating expenditires. Use historical data, obtain quotes from third parties and discuss costs with others who operate in your industry or may be able to give you additional information. It can require more work upfront, but well-supported figures will ensure a more relevant and reliable forecast.

4. Review and update

Things change, and so should your forecast! Once you've prepared your working document, it shouldn't be filed away in the back of the cabinet. By comparing actual results to the forecast, you are able to see how you performed. Were you able to reach your sales target? Perhaps a significant expenditure was missing from the original forecast. Did you make money in one area and lose money in another? This analysis may lead to revisions in the forecast and will also provide you with information to make better business decisions going forward.

If you would like more detailed information about financial forecasting and how it can help your business or organization, feel free to send me an email: lisa.kennedy@mrsbgroup.com

Summer FUNdraising Ideas for your Professional Team

MRSB Credit Manager Alana Chandler on how you can bring a little more sunshine into the lives of your team – and a local charity – this summer

Summer is a time of cold drinks on hot sand, swimming in the blue ocean and camping out under the stars…unless you’re sitting at your desk in front of a computer, that is. 

It can be hard to feel motivated at work when, just outside your double paned office windows, tourists are eating ice cream and locals are enjoying their first heady days of vacation. Why not kickstart your team’s summer fun factor with a charitable activity that gets you outside for a breath of fresh air?

You don’t need to be a manager to get these summer FUNdraising ideas rolling; they just take a couple hours of planning and a worthwhile cause:


Break out the mats and cotton tights and invite a group of colleagues to downward-facing-dog their way to fundraising success. Hit the local park for maximum exposure, put up a couple of signs and ask passersby (or family and friends in advance) to sponsor 10 minutes of yoga for a dollar, or an hour for $5. The brighter your clothing and the bigger the group, the more attention you’ll attract.

Hot Tip: This idea also works with aerobics, net sports or spinning!


Arts & Crafts Sale

Pay for a booth at an outdoor craft fair or artisan market and let your staff’s inner artistry shine. This one takes a few weeks of prep to make sure you get enough donated items together to sell, but you will have both the pleasure of managing your sale as a team and the thrill of selling your own hand-crafted wares. Win-win!

Hot Tip: Framed photographs, knitted or crocheted baby items, jarred jams or preserves and woodworking are all attractive yet doable items for this type of event

Barn Dance

You undoubtedly work with someone who knows a farmer, or has one for a neighbor. Use your selling skills to sweet talk him or her into letting you borrow their barn for a shindig. Sell tickets in advance for $5 or $10, decorate the place with fairy lights and flowers and either recruit some local musicians or just fill someone’s iPod with country-tinged tunes. A late night of dancing in the hay will ensue – just make sure no one spikes the punch with homemade moonshine!

Hot Tip: Your local community centre or church hall will work just as well in a pinch

Ice Cream Stand

Dip into your petty cash drawer and buy a few big tubs of ice cream in different flavours and fill a large cooler with ice. Ask staff to take turns selling at a buck or two per scoop to sidewalk-weary pedestrians.

Hot Tip: Have both wafer cones and paper cups on hand so parents can easily buy for their little ones as well as themselves

Litter Pick-Up

Attack your local beach or park with rubber gloves and garbage bags. This is a great one for large teams as a bunch of you can take part at once. Request sponsorships, or speak to local council and ask if they’d be willing to make a one-time donation for your services. You’ll not only be raising money for your charity of choice, but giving your local green space a good scrubbing.

Hot Tip: Come prepared with bug spray, extra gloves and water bottles to make sure your team is as comfortable and cool as possible

So there you have it – five fundraising ideas to get your team away from their desk and enjoying the sun this summer. Tweet us your favourite #summerFUNdraising idea, or a past success @MRSB_Group. Enjoy the season!

Things to think about before buying a tourism business

Wayne Carew, principal & senior advisor with MRSB Mergers & Acquisitions, lets readers in on a few must-dos before jumping into the role of tourism operator

If you are a would-be hotel, theme park, B&B, campground or seasonal restaurant owner, headlines like these probably get your heart racing: ‘Canadians eating out more than they cook at home’, ‘PEI campgrounds enjoy record summer’ or, ‘This is the year of the theme park!’. Ok, I made these up, but we’ve seen ones like them. While these highlights are definitely good news for local tourism, they by no means tell the entire story, especially to those who are considering getting into this thrilling but sometimes unpredictable business.

First, let’s talk a bit about financing. A financing institution’s willingness to lend you money to buy or start a business depends on several factors, not least of which is how long it might take you to repay what you’ve borrowed. It can sometimes be difficult as an owner to adhere to a short payback period because the cash flow period (the time during which your business is taking in more than it spends) can be as short as two to four months. Of course, if your campground or water park is so wildly successful during the summer months that you can easily spread that income over a year’s worth of payments, you’ll have no problem. But the taciturn business cycle that is so common to tourism operations, and so shrewdly approached by lenders, is not something to be taken lightly.

One potential solution to the problem of limited lending power is to go through a government agency instead of the bank or lending organization. If your business doesn’t fall into the ‘must see/must do’ category, securing a provincial or federal government loan or grant could be your ticket. Make sure to do your research, and to enlist the help of a consultant or advisor if you feel the application process is over your head or will take up too much of your time. Many government processes are highly competitive, so you will want to do it right the first time.


                      The Cavendish Boardwalk is just one part of a lucrative cluster of businesses lining this popular beach destination

I’ve spoken to many a would-be owner who had quite a glossy view of what owning that hotel or string of cottages would be like. Words like ‘idyllic’, ‘cozy’, ‘beautiful’ and even ‘relaxed’ slip into the lexicon like oars into the cool waters of a pristine lake. If you think I’m being a little too starry-eyed with my wording, it’s because I’m making the point that romantic language has little to no place in business ownership, just as it has a limited place in professional blog posts. As an old business colleague used to say, sometimes entrepreneurship can be “an affair of the heart, not of the head”. What this all means is that you as potential owner need to reel in the fantasies and focus on the realities of your potential situation. Sure, you may have the occasional sunny morning when you lean idly in the rustic doorway, sipping coffee and marveling at how wonderful life is. But you’re far more likely to be spending your mornings hunched over budget sheets, providing slapdash training to a new employee or fishing something slimy out of the kitchen sink – for the third time. As long as you’re ok with it not being all roses, you might just have what it takes!

Think too about whether the business you’re considering is part of an already fertile ‘cluster’. For example, Matt Jelley is a highly successful entrepreneur who chose the renowned Cavendish Beach area in which to open his newest operation in 2006, Shining Waters Family Fun Park. The businesses surrounding the park make up one of the most lucrative tourism stretches in Atlantic Canada, and each business lends itself to one other, so to speak. Families can spend Saturday at the beach, do some quick shopping, eat at one of the local restaurants that evening, then hit Shining Waters on Sunday before heading home to New Brunswick. Another piece to Jelley’s success story that shouldn’t go unmentioned is that fact that he already owned two theme parks in Atlantic Canada before launching his new venture. He knew the market, he had years of hands-on experience behind him and the funds to back it all.

One last thing to think about is how long you plan to stay in the business. Unlike flipping houses, flipping tourism businesses doesn’t work the same way. In my opinion, if you’re going to do it, do it for long haul. Make the most of the business over 10 to 20 years and leave it better than you found it. Teachers are often ideal candidates to own tourism operations as they make a steady income for working fulltime most of the year, then have a few months during which they can potentially devote their time to making a seafood restaurant, B&B or cottage getaway shine. And during months or years when the business isn’t exactly thriving, they can lean on their salary and wait out the storm.

This post isn’t meant as a doom and gloom forecast of what may happen if you aren’t perfectly suited to life as a tourism operator. After all, we live in a province that makes much of its income on people visiting our shores ‘from away’. The industry remains strong and vibrant here, with many success stories and several regional clusters to take advantage of. My main bits of advice starting out would be to do a lot of research, speak to those already in the business, prepare your funding source(s) as far in advance as possible and have some kind of windfall or backup plan, just in case. Oh, and make sure you really like to meet new people, hear their stories and spend a good chunk of every day being social. Because that’s pretty much what showing people a good time on PEI is all about.