Its important to know your numbers as you operate your business. In this episode of MissionBusinessPodcast.com Bernard Roesch is going to discuss forecasting and how you can use it to predict revenue and profit throughout the year.
If you have any questions about this podcast episode, please feel free to contact us.
Forecasting Revenue Is Important
Sales forecasting is important because it allows you to plan ahead. While you may have a plan for your business over the next few months or quarters, there are a range of things that can happen in the marketplace that might require adjustments to that plan.
- Having a forecast in place allows you to have a road map for your business and to compare what actually happens to that road map.
- If changes happen in the marketplace, and you realize that your forecast is no longer realistic, you can make changes to the forecast based on this new information.
Forecasting is important so you can plan ahead and adjust your plan when needed.
How To Create A Forecast
Each business will have different information that goes into a forecast, but the process for creating a forecast is usually the following:
Review historical data – If you have been operating your business, you will have historical data that you can use in your forecast of future revenue and expenses.
- This historical data can come from your accounting system such as QuickBooks or other sales and expense data you have access to.
- If you don’t have historical data, you can create estimates based on your marketing and sales plans, industry metrics, or possibly discussing metrics with similar types of businesses in your market.
Estimate future revenue and expenses – Once you have your historical data, you can use that to estimate future revenue and expenses.
- For example; is there anything that may happen over the next few quarters that would cause your revenue and expenses to be different than they had been in the last few quarters?
- These numbers do not need to be extremely precise, but it’s important that they be realistic and based on the historical data you have.
We’ll be discussing how to revisit this data as the year progresses below.
Create a revenue and expense forecast – The forecast can be created using Quickbooks or a spreadsheet tool like Microsoft Excel.
- Gross revenue – Forecast your gross revenue for the time period in the forecast.
- Gross profit – After forecasting revenue, use your past profit margin data to forecast your gross profit. If there’s any changes you expect in the market place such as supplier price increases, be sure to accommodate for that here.
- Other expenses – Once you have estimated the gross revenue and gross profit, add other expenses to the forecast.
Using your forecast throughout the year – The most important part of creating a forecast is revisiting that forecast over time. The forecast will rarely be perfect, but the process of forecasting your revenue and expenses and then comparing your actual revenue expenses to your forecast throughout the year allows you to adjust your plans accordingly while changes may be needed.
We Can Help You
This forecasting and adjustment process allows you to plan ahead throughout the entire year. If you have questions about how to create a forecast for your business or want to discuss additional financial strategy opportunities, contact Bernard today.
You can also visit MissionBusinessPodcast.com for more insights that Bernard has been sharing with us in the previous episodes.