How to forecast in times of uncertainty
Law firms have had to forecast their cash flows in order to understand their financing needs in the coming year and to substantiate their application for CBILS loan.
How can they arrive at a realistic sensible forecast in such times of uncertainty?
Any forecast of the future will be wrong-but we can get an idea of where we are headed. Provided we are clear about our assumptions – track the main variables and adapt our response accordingly.
The approach we have adopted is not complex but is detailed. Recognise that the lockdown will affect all departments differently-so forecast at department level then aggregate the firm.
Start with the budget income for each department for the coming year monthly, then ask a simple question. For that department, for that month, what % of our budget do we expect to bill? Best done to the nearest 10%. A simple spreadsheet with a few calculations can be very powerful.
Then track the accuracy of the forecasts and update them regularly by tracking the % achieved each month against a predetermined standard then assess the impact in each area to make staff and resource decisions accordingly.
This article was written by Barry Wilkinson of Wilkinson Read.