Recipe Archive

RISCORE's July Recipe for Small Business Success

New Business Sales Forecasting

Start with ASSUMPTIONS – write them down. Make assumptions as to number of units (or hours if a service) to be sold each week in any reasonable category breakdown. Categories may be selected because of COST differences. For example: 10 large, 15 medium, and 20 small. Use the list selling price for each category.

If services are sold by the hour, guess at how many jobs, or hours, will be provided each day and each week. If different rates are used for different jobs; estimate the number of jobs for each type. Be sure to total the number of hours, so available hours (24 per day) are not exceeded.

Document the logic of the ASSUMPTIONS as to units and prices expected per unit based on advertising, promotions, demographics, competition, experience, marketing data, wishful thinking, and any other available information. Estimate price reductions such as discounts, promotions, etc. to arrive at Net Sales.

Write all this down along with the assumptions of cost and volume expectations of discounts and promotions. This will be the basis for the “Business Plan”.

Prepare a “spreadsheet” by month showing 12 months across the top. List the items of revenue in the left column and compute revenue forecast for each period. Use a four week month for the first pass at forecasting and allow for growth, seasonal influences, etc. (Also to be written in ASSUMPTIONS).

Calculate sales revenue for each month. This provides a reasonable expectation as to possible revenue for an enterprise. It allows one to see sales results if changes are made to price or units sold. It provides a template to enter expenses for profit projections and cash flow forecasts.

When the business is underway, track the assumptions made, and see how it affects the results. A business model is established and can be modified to improve the results. This methodology for business success is practical for a small business – not feasible for a larger enterprise. Just ONE advantage of the small business.

June 2008
R McNeill