{"id":6349,"date":"2023-12-29T10:54:00","date_gmt":"2023-12-29T15:54:00","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?p=6349"},"modified":"2026-02-12T04:10:56","modified_gmt":"2026-02-12T09:10:56","slug":"forecasting-can-improve-bottom-line","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/forecasting-can-improve-bottom-line\/","title":{"rendered":"How forecasting can help improve your bottom line"},"content":{"rendered":"
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\n\t\t\t\t\t\t\tMoney Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t
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\n\t\t\t\t\t\tHow forecasting can help improve your bottom line\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t\t

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\n\t\t\t\n\t\t\t\t\"\"\t\t\t\tRob Arkes<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n

Construction companies are always looking for ways to set themselves apart from the competition. In order to succeed in today\u2019s climate with fierce competition and razor thin margins, you need to be forward-thinking in your management style.<\/p>\n\n\n\n

Traditional approaches to business visibility (e.g. reporting, monitoring, and analyzing) are important and can help you gain insight into what already happened and what is happening now but having a solid understanding<\/a> of what might happen in the future can help give you that competitive advantage.<\/p>\n\n\n\n

Start by making forecasting an integral part of your business planning cycle. Your business planning cycle should look something like this:<\/p>\n\n\n\n

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  1. Analyze Data<\/strong>
    Consider information about company performance, your projects, the economy, and the marketplace.<\/li>\n\n\n\n
  2. Identify trends<\/strong>
    Take note of patterns in your performance, marketplace trends, and other key indicators (such as     material and labor costs<\/a>).<\/li>\n\n\n\n
  3. Forecast performance<\/strong>
    Apply your findings to predict how your business\/projects will perform in key areas.<\/li>\n\n\n\n
  4. Plan and budget<\/strong>
    Use forecasts to plan for the future (\u201cShould we hire more workers?\u201d) and to help scope projects (\u201cDo we have the funds to cover cash outflows?\u201d).<\/li>\n\n\n\n
  5. Execute <\/strong>
    Act decisively based on your plans but prepare to make course corrections, as needed.<\/li>\n<\/ol>\n\n\n\n

    Be sure to forecast at both the business and project levels as well as for external forces. At the business level, your forecasts help you develop your budgets, establish a vision for the future, and create benchmarks to measure and reward performance. Use predictive indicators such as customer satisfaction, sales pipeline, and accounts receivable turnover to help you create your forecasts.<\/p>\n\n\n\n

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    Construction Executive’s Guides to Business Visibility<\/h2>\n\n\t\t\t\t\t\t\t\t\t
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    Are you running your business through a \u201ckeyhole?\u201d<\/strong><\/p>\n

    Our series of interactive guides provide step-by-step instructions on how you can turn data into a blueprint for sustainable success.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\tDownload Guides<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\"Construction\t\t\t<\/div>\n<\/div>\n\n\n\n

    Business forecasts<\/a> to consider include backlog, new contract awards, direct and indirect costs, cash flow, net profits before taxes, gross margin, and revenue. Review your forecasts and take a second look at any areas that show a significant change.<\/p>\n\n\n\n

    For example, be leery of forecasts that have your gross margin making a big leap. Costs that are high today will likely remain so in the future. When forecasting revenue, embrace your aspirations and build at least one set of projections with aggressive assumptions. Of course, you\u2019ll also want to put together a contingency plan in case actual results fall below projections. It\u2019s usually a good strategy to plan for the worst but project for the best.<\/p>\n\n\n\n

    Each project must be controlled carefully from beginning to end. Forecasting plays a vital role in identifying potential problem areas\u2014after all, how can you know when a project gets off course unless you first understand the destination? Successful contractors are systematic with their project forecast, typically requiring finance and operations<\/a> to work together to provide monthly project forecasts.<\/p>\n\n\n\n

    Construction forecasts typically rely on accurate and timely input from field management<\/a> for information such as percent complete and units in place. From these indicators, you can derive a forecast variance and make adjustments. To improve the timeliness of this data, companies are increasingly providing mobile access so field personnel can record project progress from the jobsite. Key project areas to forecast include net profit, cash flow<\/a>, cost to complete, and equipment resources.<\/p>\n\n\n\n

    In addition to making projections regarding internal business performance, it\u2019s important to consider how external factors will impact your organization. For construction businesses, these external driving forces typically fall into five categories: economic, political, social, technological, and environmental. Some questions to consider include:<\/p>\n\n\n\n