How to Predict Cash Flow with Stagger Charts

For business owners, predictability is the goal. If you could do away with the wild rollercoaster ride and have a better idea of what to expect month after month, you’d save yourself plenty of stress and gray hairs, right?

But this is where most people get stuck.

When entrepreneurship comes with so many ups and downs, stability seems impossible. Forecasting is tricky to begin with, and is only made more difficult by the fact that most business owners are eternally optimistic.

Any time you’ve sat down to crunch your numbers before, you eventually discover that your predictions are so far off that you figure it’s totally fruitless to give it another go.

It’s frustrating. But, think of your “predictability muscles” just like you would any other muscle in your body—you need to commit to practice if you’re ever going to see improvement.

Stagger charts  are a great tool to use to do this. These charts help you keep your finger on the pulse of how your business is performing, and then enable you to use that information to get better and better at forecasting as you move forward—thus strengthening those “predictability muscles” of yours.

So…What Are Stagger Charts?

Made popular in the book High Output Management by Andy Grove, the former President of Intel, stagger charts are a way to keep an eye on how accurate your predictions are.

On the horizontal axis, you list the month you’re making forecasts for. On the vertical axis is the month when you made that prediction. Every month, you sit down and fill in the chart to make your predictions for the following six months.

Predicted numbers are in black, and the actual figures are in red. Let’s look at an example using this chart.Jason runs his own website development agency. He’d like to add another developer to his team. But, before he does, he’d like to get a better idea of his anticipated revenue—to ensure he can afford the additional expense.

In March, Jason sat down and predicted that his business would earn $16,450 in the month of May (to find that, go down to the month of March on the vertical axis, and then over to May on the horizontal axis). When May actually rolls around, Jason sees that his agency actually earned $16,400. He was pretty close with his prediction. To strengthen the muscle, Jason needs to sit down every month to see how his predictions fared, then revise them for the upcoming six months.

What Do Stagger Charts Accomplish?

As Jason demonstrates, stagger charts are an effective tool for keeping a close eye on your numbers and using that information to make adjustments and form more accurate predictions moving forward. Consider them as the weight machine for your “predictability muscles” (are you sick of this cheesy analogy yet?).

“Stagger charts help us make decisions grounded in reality, not based in aspiration,” adds Walter Chen, CEO and Founder of content agency, Animalz, “This is one of the hardest skills for entrepreneurs to develop—you have to be optimistic and realistic at the same time.”

Looking across the rows shows Jason how his revenue has performed over the span of those months. His revenue seems to be on a steady increase—which is great news for Jason and his dreams of hiring a new developer. Looking down each column in the chart shows him how he adjusted his predictions as that certain month drew nearer.

These stagger charts are awesome for helping you predict your cash flow like Jason did—you can even create one for your anticipated income and one for your expected expenses. But, these simple charts can be used for a multitude of different business numbers, from hiring to marketing leads.

Using Stagger Charts to Your Advantage

Getting your numbers down in this chart is helpful, but it’s really only half the battle. It’s up to you to actually use that information in order to become more accurate with your predictions as you move forward.

There are a few key things you can do to ensure that you begin to make more realistic predictions.

1. Look at Your Variances

First, take a look at your actual numbers compared to your predictions. What do your variances look like? Are you always off by just a small margin, like Jason is? Or, are you always way off base? Are you sometimes right on and other times completely wrong?

Getting a grasp on what the variances are in your chart will help you identify whether you tend to be optimistic, pessimistic, realistic, or totally all over the place.

2. Identify Trends

You should also look at your stagger chart to identify any trends that you should be aware of. Sticking with revenue as an example, does it appear that things tend to dip in November and December around the holidays and then pick back up again in the new year?

Making note of that will arm you with the information you need to be more spot-on with your predictions and planning next year—as you’ll know to anticipate lower revenue during those months.

While doing this, you’ll also want to make sure to consider any unusual circumstances. Did you land a huge and unexpected client project that caused that major revenue spike? Or, did you take a two-week vacation during that month, which meant things weren’t moving as fast as normal?

You don’t make predictions in a vacuum. So, pay attention to any circumstances that could’ve impacted the numbers that you’re seeing, as well as if you anticipate those circumstances to happen again in the following months or year (hey, you’ll probably go on vacation again, right?).

3. Get the Complete Picture

You know that for every action, there’s an equal and opposite reaction. And, that opposite reaction is worth considering if you want to look at the complete picture of how your business is performing.

Let’s use cash flow as an example here. Perhaps you’ve made a stagger chart for your anticipated revenue—that’s great! But, you shouldn’t stop there. You should also create a stagger chart for your expenses.

Doing so will give you a more accurate grasp of the money coming in and the money going out, which is crucial for maintaining a healthy business.

Any time you create a stagger chart, take a moment to ask yourself if there’s another related figure you should be considering. If so, make a chart for that aspect of your business too.

4. React Accordingly

Stagger charts are a useful tool for creating more accurate predictions. But, these charts are just that—a tool. You need to take action and react accordingly based on the numbers you’re seeing.

Think about it this way: You wouldn’t create a detailed budget and then assume that the sheer act of having that spreadsheet would mean you’d follow it, right? Nope. You know that it’s just a stepping stone, and that you need to actually leverage that information to your advantage.

If you notice that you’re always overly optimistic with your predictions? Make an effort to be more grounded in reality moving forward. If your revenue is all over the map? Identify some strategies and tactics you can use to even things out a little bit.

Remember this: Stagger charts don’t exist just to make you aware of your faulty forecasting—they exist to help you fix it.

Over to You

The rollercoaster ride of business ownership can be mentally and emotionally taxing. But, becoming better at forecasting is a surefire way to take some of the butterflies out of that ride. After all, that big dip isn’t quite as terrifying if you can at least brace yourself for the fact that it’s coming up.

Fortunately, you don’t need a crystal ball to make your predictions stronger—all you need are stagger charts. Use them to your advantage, and you’re sure to have a better handle on how your business will perform month after month.