Every November, Ross O. Youngs, president and CEO of Univenture Inc., takes a look at the future.
By April, the start of his fiscal year, he'll have forecasts of the company's financial well-being through that year -- and the next three to five.
How good are his predictions?
In 1993, he told SBN his company would reach $20 million in sales by 2000; that goal was reached at the end of his 1999 fiscal year. By the beginning of November 2000, the company was running less than 1 percent off that year's sales forecast.
His secret: information overload.
He looks at industry trends and talks to different departments within his now-$25 million company and enters all the variables into an Excel spreadsheet. Then he rearranges the numbers -- What if raw material costs go up? What if a new product bombs? -- to see what effect such changes will have on the big picture.
"I like to do it because I've got the challenge of producing those results," Youngs says of financial forecasting, "but you've also got the challenge of trying to have an impact on those results.
"It's part of the challenge of business if you can find efficiencies, sell more product to customers, do whatever you can do. You're not going to really understand unless you lay it all out and review it."
Put it all in writing
Youngs hasn't always been so adept at financial forecasting. His worst miscalculation, predictably, came when he started the compact disc packaging manufacturing company in 1988.
"I probably showed us hitting $20 million within four years," he says, noting by the end of those four years he had a $1 million company. "But that was based on very little knowledge. You might as well just take a swipe out of the air."
Now, his financial forecasting is filled with knowledge from every realm he can think of.
"You take pieces of the puzzle," he says. "The more contributors, the better."
Here is some of his advice:
Don't go it alone.
Key contributors to his process are representatives from his sales and finance departments. He also gets input from manufacturing, engineering and product development.
Look at trends in your industry.
Youngs looks at every segment of his business independently to see where it's going.
He's fortunate, he says, because he has many different customers and product introductions each year.
"We don't have one huge, big customer. Our biggest is 6 percent of our business," he says, which is a safeguard.
Even if he lost his biggest customer, his company wouldn't feel much impact because its growth rate is higher than 6 percent.
"It's harder for companies to forecast if you have a couple of large customers," he says. "They can pull the rug out from under you pretty quickly."
Likewise, Univenture's many product introductions allow Youngs to make a better overall prediction. Even if he's off on one product's numbers, another may make up for it, averaging out to the bottom line he expected.
Consider all your variables.
In 1999, Youngs hoped to introduce in November a new product, the UniKeep, an enclosed case that holds up to 12 discs in protective sleeves, and sell about 66,000 a month.
In reality, the product was promoted in November but the first delivery wasn't until March. Between March and the following November, the company delivered nearly 1 million units.
"This year it will be tougher to decide how many we're going to deliver. We've got a little bit of a trend, but we're going to put more advertising on it," he says.
Because he keeps his forecast in a spreadsheet, he's able to make adjustments as the fiscal year progresses. For example, he can see what would happen if Univenture expands sales geographically.
Youngs estimates both a high and a low end of what he expects to sell and uses those figures as variables. Then he considers the marketing plan -- how the company will promote the product and how many will be sold or given away.
"That becomes a piece of all the information that goes along with all the other pieces," he says.
Pay attention to the details.
In financial forecasting, Youngs says, it's not necessary to count every penny going in and out, but you need to prioritize.
"We choose which categories are more critical in having an impact on our projects," Youngs says. "You could spend a long time just getting details, but some are not as critical."
Youngs looks at components that are greater than 5 percent of Univenture's business when he does financial forecasting, but he doesn't let that benchmark tie him down.
"If a component that's 5 percent is growing, then you've got to pay a little bit more attention to it," he says.
If Univenture has a horrible month, Youngs won't go back in to his predictions and knock off results for the rest of the year.
"In April and May of (1999), we had fallen off our predictions by nearly 15 percent," he says. "By August we were on track."
This fiscal year, he has one segment missing its mark by 50 percent and another beating its mark by more than 100 percent.
"That's the nice thing about having multiple things to look at," he says.
Youngs lets the rest of the company in on his goals. They're regularly monitored, too.
Bulletin board postings, for example, keep track of the status of product sales.
He also sets his targets high.
"We're not a public company. I do that to help everyone realize we're going to have to stretch," he says. "When I put out numbers internally, I'm putting out the goal numbers, not necessarily the prediction numbers."
Have a safety net.
"Financial forecasting is really dependent on what you do at the top line," he says. "We start at the top line of what we're going to sell and plug in what it's going to take to achieve that.
"It's harder for new businesses. You don't know. You can't be that confident," he says, "and because you can't be that confident, you should have backups (in case your revenue projections fall short).
"We have the capability, because we're growing, to scale back our growth plan at virtually any time without affecting our current condition," he says of Univenture's backup, which he also calls a "disaster recovery plan."
Back to the beginning
While Youngs says his first few years of business were the most difficult for financial forecasting, changes in his company now will produce challenges again.
"In essence, we're back in the first few years again," he says. "New products make it like a new business."
He's bringing out a highly protective disc-mailer package, and he's wondering whether two of his newer segments will continue their growth rates of 140 and 180 percent.
He'll also introduce a larger version of the UniKeep to accommodate other items such as sheets of paper, collectible cards or business cards. Instead of just promoting it in the compact disc industry, he'll introduce the UniKeep to all industries that handle paper.
For those predictions, he'll use another piece of information: input from studies and focus groups.
"This UniKeep product we're going to put out (this) year is going to have tremendous impact. How do you predict that? One scenario out there is if we got 6 percent of the U.S. market, we'd be a $300 million company," he says.
Youngs is not afraid to offer forecasts, but he's not being too specific because of those factors.
Here's his call: Univenture should be in the $30 million to $35 million range for this year and the $100 million to $300 million range by 2005. How to reach: Ross O. Youngs, Univenture, 529-2100 or www.univenture.com
Joan Slattery Wall (firstname.lastname@example.org) is associate editor of SBN Columbus.