Doing Projections in SurvivalWare – Part 1: the Forecast Tool

This is a 5 part series of articles covering the fundamentals of doing financial projections using SurvivalWare and the generic financial model that comes with it.

 

  1. Getting familiar with the Forecast Tool
  2. Sales and Expenses
  3. Debt Service and Investment
  4. Working Capital
  5. Other Cash Flow

Part 1 – getting familiar with the Forecast Tool

 

Intro

 

The Forecast Tool is designed to help you verbalize your assumptions about a projected line item, and convert the assumptions to hard numbers.

 

Definition of “Projections”

 

I’d like to define a projection as your best guess about what is going to happen given a number of explicit assumptions.

 

You could do a sales projection and stop there.  Your explicit assumption might be “I expect sales to 10% above the year ago value for the next several months.”  Or “I’d like sales to continue growing as they have recently, and exhibit the same seasonality.”  SurvivalWare accommodates either.

 

The role of the “model”

 

Individual line items

 

The model that comes with SurvivalWare combines the latest “actuals” with your projections to calculate the best possible estimate for combinations of months such as the current quarter, and the projection for the current year. (e.g., the current quarter could include one month of actuals and two months of projections).

 

You can either type in your projection, one number at a time, or use the Forecast Tool.  The Forecast Tool helps you verbalize your assumptions and convert them to hard numbers.

 

The complete picture

 

The model also takes dozens of individual projections and assumptions of what will happen to Sales, Expenses, and key drivers such as Collection Period and Inventory turnover – and combines these into an overall projection of what happens month by month to profits, the balance sheet, and cash flow.  Some refer to this as an integrated financial statement projection because the model captures the interplay between income statement, balance sheet, and cash flow.  The end result, is that you have a projection of how much cash you’ll have on hand month by month based on your detailed assumptions about sales and expense levels, planned capital expenditures, etc.

 

Forecasting a single line item

 

Here for example is a projection of Organic Visits to the SurvivalWare website.  Organic visits occur when someone uses a search engine to find our website (as opposed to a referral, a paid click, or direct entry of our URL).  We’ve been using Google Analytics since February 2007 to track traffic to the website, so we have 15 months of data.  This is not enough history to do a seasonal forecast, and I am not sure it is seasonal anyway.

 

Looking at the trend is easy as 1-2-3:

 

Looking at the Trend

 

Graph of Total Organic Visits

Total Organic visits cannot be forecast directly because it is a calculated row.  We can tell it is calculated because it has a yellow background, and we cannot type a number in one of the yellow cells.  What we can do is forecast the three rows that make it up all at once.

 

So we mark the three rows –  Google, Yahoo, and Other – and click the Forecast Icon.

 

Forecast Icon

 

10% growth vs. last year

 

Forecasting 10% growth vs. Last Year

 

 

Forecast of Organic visits to the Website

Simple trend

 

The simple trend uses the least squares regression technique to fit a straight line to the historical data, and extends that line into the future.  Just click the Forecast Icon again, select “Simple Trend” and click the Forecast button.  Here’s what you get:

 

Simple Trend

Looking at Years

 

You can switch the view from months to years at any time by clicking on the “Years” radio button in the upper right part of the screen.

 

Switching to Years from Months

 

This is what our 21 month forecast looks like when summed into years.

 

Looking at the Year Trend

Making a total leap of faith

 

Here’s what happens if we then use the forecast tool to take our 21 month forecast based on a total of 15 months of history and extend it out another 4 years.  Just click on the Forecast Icon again, and hit the Forecast Button to compute the “Simple Trend” for the years view.

 

Porjecting out 4 more years

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4 Responses

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