BUILD-A-BROKER
Poor Forecasting Can Sabotage Your Business Plan How to get a more accurate crystal ball
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evenue forecasting is one of the most critical elements of a business plan. Accurate forecasting can help you validate the business case for your brokerage and help you build trust among future investors and partners. Poor forecasting, on the other hand, can sabotage your business before it even gets off the ground. And yet many startups don’t give their forecast the attention it deserves. They end up getting the numbers wrong … by a long shot. If a startup brokerage goes under, it’s most often within the first two years and is usually a direct result of poor financial management and the business running out of capital. Revenue forecasts are one of the most overlooked areas of the business plan, yet an accurate and realistic forecast is vital to the health and longevity of running your own brokerage, rather than being an LO on someone’s else’s roster.
A QUICK REVIEW—WHAT IS FORECASTING? The concept of revenue forecasting is pretty straightforward. Simply put, it’s the calculation of the amount of
money a company will receive from sales during a particular period. Most companies determine forecasts for a period of time in the future based on actual sales revenue earned in the past. For a startup, this presents an obvious problem. Forecasting can feel like throwing a dart blindfolded. Why is it such a critical step in the business planning process? When starting out, your reputation is what you’re selling. If you’re trying to secure funding or recruit the right team, you need to sell them on your vision and dream. Backing that up with realistic revenue expectations based on researched data is one of the most important ways to show your key stakeholders that you’ve developed a firm business case for your brokerage. As the owner of the business about to make a large investment of time and money into your new venture, solid, accurate projections are the clearest way to also prove to yourself that your investment will be a profitable one.
THREE COMMON FORECASTING TRAPS Giving the revenue forecast its deserved place in a business plan
isn’t an easy task. So, why is it that forecasts are a challenge for startups? 1. The Lack-of-Data Trap. It’s difficult, if not impossible, to forecast accurately when starting your business. For all other businesses with historical data, past metrics are used to project profits and losses. This data is simply not available when you’re starting out. 2. The Over-Simplification Trap. Confident entrepreneurs typically project growth linearly with consistent growth over time. This creates what looks like a ‘hockey stick’ graph – a forecast that the startup will have stellar growth that keeps going up and up indefinitely. Smart partners will immediately meet hockey stick graphs with skepticism, knowing the projection is oversimplified. 3. The Not-Based-in-Reality Trap. Similar to assuming immediate and consistent growth right out of the gate, entrepreneurs tend to cherrypick data and leave out other critical pieces of the puzzle. Demand for your product, competition, market size, pricing, and marketing expenses are just a handful of the elements of a well-developed forecast that a surprising number of owners omit.
PEOPLE ON THE MOVE //
> Black Knight
announced that Richard Lombardi has joined the company’s data & analytics organization as senior vice president for data strategy & innovation.
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> WFG National
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Title Insurance Company hired Natalie Koonce as vice president, national escrow advisor.
> Technology
veteran Jesse Decker joined Sagent, a mortgage servicing fintech company, as executive vice president of customer success.
> Guild
Mortgage appointed Michael Querrey vice president, strategic retail growth, for its Mountain West Division.
