My role as an audit partner means I have a duty to make an assessment of the going concern position of most my clients. This necessarily involves a peek at their cashflow forecast. It is possible that I have seen more of other people’s forecasts than 99% of the population (even other accountants). I have learned the following three truths:

  1. Everyone (and I mean everyone) uses Microsoft Excel
  2. Most people manipulate the forecast to arrive at the cash position they need, and then they spend the next 12 months moving heaven and earth to achieve the assumption implicit in the forecast they’ve arrived at
  3. The revenue/receipt forecasting is usually something akin to Voodoo magicIt is on this last point that I wish to dwell.

The best tool I’ve seen (and I’ve used) to successfully forecast sales in an opportunity pipeline. And the analogy of a pipeline is apt. The concept is, a potential $10,000 job starts its life in the pipeline as a lead. The lead flows down into a qualified lead, which then becomes a prospect, which then in turn becomes a client.

opportunity pipelineAt the time the $10,000 job is just a lead, it carries a 5% chance of becoming a client and so only $500 appears as revenue in the Opportunity Pipeline. But as the lead matures, the chance of it becoming a client improves. So that at the prospect stage, which might have a 50% chance of succeeding into a client, $5,000 will appear in the Opportunity Pipeline.

As the lead flows through the Opportunity Pipeline, it should achieve certain Milestones. Common milestones might be; initial interview completed; proposal developed; proposal submitted; credit check performed; or client approval received etc. Indeed both the milestones and the percentage chance of client conversion that exists at each stage, is up to each business to decide upon. Your accountant can assist you in developing a model to suit your needs.

It is absolutely logical that different leads carry different dollar values based not just on their nominal price, but on their probability of success too. In our office, Optima Audit considers even the most loyal client only a 95% chance of requiring us to perform an audit next year. This is because 12 months is a long time in business and anything can happen; insolvency; takeover; change of management etc.

Online applications like Capsule CRM and Salesforce make the most of this tool and should be investigated if you decide to take my advice and develop a pipeline.

If you need further advice on making the most of your opportunity pipeline, contact me or your accountant to discuss further.


mike small

Michael Cooper
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