How To Create A Sales Forecast

Developing your sales forecast isn’t as hard as most people think. Think of your sales forecast as an educated guess. Forecasting takes good working knowledge of your business, which is much more important than advanced degrees or complex mathematics. It is much more art than science.

Whether you have business training or not, don’t think you aren’t qualified to forecast. If you can run a business, then you can forecast its sales. Most people can guess their own business’ sales better than any expert device, statistical analysis, or mathematical routine. Experience counts more than any other factor.

Break your sales down into manageable parts, and then forecast the parts. Guess your sales by line of sales, month by month, then add up the sales lines and add up the months.

The illustration below gives you an example of a simple sales forecast that includes simple price and cost forecasts which are used to calculate projected sales and direct cost of sales and estimate total dollar value for each category of sales.

A simple sales forecast

Use text to explain the forecast and related plans and background
Although the charts and tables are great, you still need to explain them. A complete business plan should normally include some detailed text discussion of your sales forecast, sales strategy, sales programs, and related information. Ideally, you use the text, tables, and charts in your plan to provide some visual variety and ease of use. Put the tables and charts near the text covering the related topics.
In my standard business plan text outline, the discussion of sales goes into the chapter on Strategy and Implementation. You can change that to fit whichever logic and structure you use. In practical terms, you’ll probably prepare these text topics as separate items, to be gathered into the plan as it is finished.

Sales strategy
Somewhere near the sales forecast you should describe your sales strategy. Sales strategies deal with how and when to close sales prospects, how to compensate sales people, how to optimize order processing and database management, and how to maneuver price, delivery, and conditions.
How do you sell? Do you sell through retail, wholesale, discount, mail order, phone order? Do you maintain a sales force? How are sales people trained, and how are they compensated? Don’t confuse sales strategy with your marketing strategy, which goes elsewhere. Sales should close the deals that marketing opens.

To help differentiate between marketing strategy and sales strategy, think of marketing as the broader effort of generating sales leads on a large scale, and sales as the efforts to bring those sales leads into the system as individual sales transactions. Marketing might affect image and awareness and propensity to buy, while sales involves getting the order.

Forecast details
Your business plan text should summarize and highlight the numbers you have entered in the Sales Forecast table. Make sure you discuss important assumptions in enough detail, and that you explain the background sufficiently. Try to anticipate the questions your readers will ask. Include whatever information you think will be relevant, that your readers will need.

Sales programs
Details are critical to implementation. Use this topic to list the specific information related to sales programs in your milestones table, with the specific persons responsible, deadlines, and budgets. How is this strategy to be implemented? Do you have concrete and specific plans? How will implementation be measured?

Business plans are about results, and generating results depends in part on how specific you are in the plan. For anything related to sales that is supposed to happen, include it here and list the person responsible, dates required, and budgets. All of that will make your business plan more real.

How many years?
I believe a business plan should normally project sales by month for the next 12 months, and annual sales for the following two years. This doesn’t mean businesses shouldn’t plan for a longer term than just three years, not by any means. It does mean, however, that the detail of monthly forecasts doesn’t pay off beyond a year, except in special cases. It also means that any detail in the yearly forecasts probably doesn’t make sense beyond three years. It does mean, of course, that you still plan your business for five, 10, and even 15-year time frames; just don’t do it within the detailed context of business plan financials.

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Business Plan Checklist

The primary value of your business plan will be to create a written outline that evaluates all aspects of the economic viability of your business venture. It will be valuable in number of ways. Here are some reasons not to skip this valuable tool and roadmap: It will define and focus your objective, using appropriate information and analysis. You can use it as a selling tool with lenders, investors, landlords and banks. Your business plan can uncover omissions and/or weaknesses in your planning process. You can use the plan to solicit opinions and advice.   Here is a checklist to help you get started: Write out your basic business concept. Gather all the data you can on the feasibility and specifics of your business. Focus and refine your concept. Outline the specifics using a "what, where, why, how" approach. Put your plan into a compelling format  Here are suggested topics you can tailor into your plan: A Vision Statement: This will be a concise outline of your purpose and goal The People: Focus on how your experiences will be applicable. Prepare a resume of yourself and each of your key people. Your Business Profile: Describe exactly how you plan to go about your intended business. Stay focused on the specialized market you intend to serve. Economic Assessment: Provide an assessment of the competition you can expect in your business. Cash Flow Assessment: Include a one-year cash flow projection that will incorporate all your capital requirements. Business Cards 15% Off All Orders! French Linen Business Card Template (White) Pearl Finish Business Cards White Linen Business Cards Photo Business Cards (Platinum Finish) Gold Finish Business Card Iridescent Pearl Finish Business Card (Style

How To Formulate (and Reformulate) Your Business Plan

Formulate (and Reformulate) Your Business Plan

Donald N. Sull, associate professor of management practice at the London Business School, in an article in the MIT Sloan Management Review, offers some practical suggestions on managing inevitable risks while pursuing opportunities. Here is a capsulation of his suggestions on how to formulate (and reformulate) your business plan:

• Be flexible early in the process and keep it fluid. Don't commit too early. Expect your first plan to be provisional and subject to revision.
• Ask yourself if your experience or expertise gives you the right to an opinion on your specific opportunity.
• Identify your potential deal killers: variables that are likely to prove fatal to the venture.
• Clearly identify what you see as the key drivers of success. What are you betting on here?
• Raise money only in sufficient amount to finance the experiment or evaluation you next envision, with a cushion for contingencies.
• Delay hiring key managers until initial rounds of experimentation have produced a stable business model.
• At some point, take the plunge and test your product or service on a small scare in the real world through customer research, test marketing, or prototypes.
• Test and refine your business model before expanding your operations.

Top Ten Do's and Don'ts

THE TOP TEN DO'S Prepare a complete business plan for any business you are considering. Use the business plan templates furnished in each session. Complete sections of your business plan as you proceed through the course. Research (use search engines) to find business plans that are available on the Internet. Package your business plan in an attractive kit as a selling tool. Submit your business plan to experts in your intended business for their advice. Spell out your strategies on how you intend to handle adversities. Spell out the strengths and weaknesses of your management team. Include a monthly one-year cash flow projection. Freely and frequently modify your business plans to account for changing conditions. Custom Business Cards

THE TOP TEN DON'TS Be optimistic (on the high side) in estimating future sales. Be optimistic (on the low side) in estimating future costs. Disregard or discount weaknesses in your plan. Spell them out. Stress long-term projections. Better to focus on projections for your first year. Depend entirely on the uniqueness of your business or the success of an invention. Project yourself as someone you're not. Be brutally realistic. Be everything to everybody. Highly focused specialists usually do best. Proceed without adequate financial and accounting know-how. Base your business plan on a wonderful concept. Test it first. Pursue a business not substantiated by your business plan analysis.

How to Estimate Financials for Business Plans

Creating good financial projections is a team effort.

 

Most articles on how to write financial projections start by telling you to project sales. As every experienced entrepreneur knows, sales are only the result of a long line of business activities beginning with market research, manufacturing, inventory building, marketing, fulfillment and customer service. All this costs money, which is supposed to come from revenues earned in the previous year or from financing. Without the money, nothing happens, so the best place to start your financial projections is the money you have available.

 

Step 1:  Create a preliminary first-year budget based on your retained earnings and credit available from your bank. If you're projecting startup financials and don't have retained earnings or credit, use the amount of investment you can reasonably expect to raise, including investment by the founders. A conservative estimate is best because spending too much money too early can force you to cut back just as your business begins to pick up.
 

Step 2:  Estimate the cost of producing your product. You can skimp on administrative expenses and hire sales reps on commission only, but you must pay for any products or services you sell. You also need to balance your product inventory with customer demand. This takes careful study of your target market's demographics, psychographics and buying habits, plus a modest estimation of what percentage of that market you'll be able to capture. An established company is able to assign a reasonably accurate percentage with growth, but a startup must expect at least a quarter of virtually no sales.

Step 3:  Estimate your customer acquisition costs by establishing how you'll market your product and then pricing out your marketing plan. A startup must develop its brand image and customer awareness during its first year, with sales demand appearing slowly during its second or third quarter; so, for a startup, marketing will carry a high priority. A mature company can estimate marketing costs with respect to its plans for market-share expansion or development of new revenue streams.
 

Step 4:  Adjust your production and marketing costs to fit your budget. The remainder is for administrative expenses. This gives you a figure of how much revenue will be required to offset your expenses. There may need to be some further adjustments once you reach this point. Add money to your marketing, figuring marketing costs at approximately 25 percent of total revenues. Marketing will produce your customers. Keep your production expenses efficient.

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Business Plans 101

A business plan is essential for both start-up and growing businesses, regardless of industry or function, and should be updated regularly as a business grows and flourishes. You have many options for creating a business plan, such as writing it yourself, using software or hiring a professional writer. Most of these documents will have several sections, each of which will be written with investors, board members and owners in mind.

Significance

• Business plans are almost universally used to secure funding for business ventures. For example, if you want your bank to give you a loan to open a restaurant in your town, you will need to present a business plan that outlines your expenses, goals, market analysis, target consumers and other information. Without such a document, very few investors or loan officers will consider your proposal. A business plan is also used to keep your business venture on track. You'll be less likely to make costly mistakes along the way.

Function

• A business plan serves to create a basic guidebook to your business. You will refer to it often as you make executive decisions and you will present it to investors. As your business grows, you might want to alter your business plan to suit new directions in merchandising or to make room for expansions. This document also serves as a quality-control outline. It will be easier to spot holes in your planning when everything is printed in black and white.

Time Frame

• Ideally, a business plan is created as soon as possible after an entrepreneur decides to open a business. It might change significantly during the planning stages as you and your partners make adjustments to the original concept, but the basic outline will stay the same. Entrepreneurs who wait too long to create a business plan lose valuable foresight.
  As your business grows, continually evaluate your plan for new avenues of income and for new market trends, adjusting its focus as necessary. These documents are not set in stone and can be altered when it will benefit your venture. Also, keep in mind that it is never too late to write a business plan.

Features

• A business plan is comprised of eight basic parts. The title page should include the name of your business, your logo and a tagline. Next, the executive summary details the type of business, target consumers, financial needs and whether the business is a start-up or established venture. This is followed by a description of the business, a section devoted to marketing tactics, a market analysis and a summary of how the business hierarchy will be established. You will also include a detailed financial plan (including any funding needs) and an appendix for supporting documents.

Considerations

• All business plans are different because each business is unique. Try not to develop a cookie-cutter document that is identical to every other sample plan on the Internet, or you risk overlooking pertinent information. For example, a business owner who wishes to open a pawn shop will need to devote more space in the plan to loss prevention than the owner of a coffee shop because theft is a more serious issue. Consider the unique needs of your business before you decide the plan is complete.

Prevention/Solution

• Many entrepreneurs have a tendency to write their business plans like marketing materials. They spend far too much time trying to sell their business, when this type of document doesn't need sales language. It is true that you want investors and loan officers to consider putting money into your enterprise, but try to let the facts speak for themselves. Include solid math, market comparisons and research that support the viability of your business.

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