Forecasting sales, especially for a small business without a lengthy track record, can be a complicated and frequently frustrating process. But even still, forecasting is one of the most important weapons in any business’ arsenal. Without proper forecasts, making the right decisions for your company’s success will be a challenge to say the least. From budgeting for expenses to maintaining the proper level of inventory, your business can’t afford to do without a well-researched forecast.
If you want to get 2015 started off on the right foot, take the time to look at your past sales, current market trends, and external economic factors. While forecasting isn’t going to be 100% accurate, using the resources at your disposal will help create a solid guideline for freshening up your finances for the new year.
Start with Your Expenses
Forming an accurate sales forecast requires a lot of information. For a small business without much sales history, it’s often better to start by determining your expenses. Common costs that small companies incur include:
Fixed costs such as rent, utility bills, legal and licensing fees, accounting costs, an employee salaries.
The cost of your inventory, which can include both the raw materials you’ll purchase and your packaging and manufacturing expenses.
Variable employee costs such as bonuses for sales professionals and direct marketing expenses.
Plan for All Likely Outcomes
Entrepreneurs are generally optimistic people. It would be hard to be a success business leader if you’re not confident in the success of your company. But while being optimistic may be a desirable trait, it’s important to also be realistic when forecasting. Develop conservative and optimistic forecasts separately, one highlighting healthy growth in your business, and the other showing the effects of strong competition or decreasing sales. The true outlook of your business is likely to lie somewhere in the middle between the two.
Double-Check Your Predictions
It takes a lot to develop your forecast – there are countless factors, each of which can affect the rest of your data. For example, if your total sales go up, you’re likely to see an increase in labor and manufacturing costs as well. You might also need to consider whether your current office or warehouse has the capacity to handle the increased sales volume.
Before finalizing your forecast for the year, go through and double-check that all of your figures make sense. Make sure your accounting for the effects that changes in sales and expenses can have on your business in order to avoid running into a sticky situation a few months down the road.
Bringing your financial forecast up-to-date for the New Year may be easier said than done, but it’s a necessary part of being a successful business leader. Having an accurate forecast is vital for ensuring you’ll have the resources in place to meet higher customer demand. It’s also important for planning for periods of soft sales so that you’re not caught off-guard when revenue doesn’t quite live up to your expectations. By dedicating the time and resources needed to freshening your business forecast, you’ll be in a position to start 2015 off well on the way to success.
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