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Forecasting Your Sales Revenue

Creating reasonable sales forecasts for your company is easier than you might think.

Opinions expressed by Entrepreneur contributors are their own.

Q: Howdo I forecast annual retail sales revenue for my smallbusiness?

A:Think of your sales forecast as an educated guess. Forecastingtakes good working knowledge of your business, not advanced degreesor complex mathematics. It's much more art than science.

The research for a good forecast is almost always harder thanthe final process of actually making the educated guesses. Yourbusiness size can determine whether your forecast may be simple ordetailed. When the research is already done, the mechanics of salesforecasting are relatively simple.

Forecasting is usually easier when you break your sales downinto manageable parts and then forecast the parts. Estimate yoursales by product line, month by month, and then add the productlines for all months. Typically you'll need to project monthlysales for the next 12 months and annual sales for the followingthree years.

Consider a forecast that projects $1,000 in sales for the month,compared to one that projects 100 units at $10 each for the month.In the second case, when the forecast is price times units, as soonas you know the price is going up, you know the resulting salesshould also increase.

A narrative contained in your business plan or similar documentshould summarize and highlight the numbers you've entered inthe sales forecast table. Make sure you discuss importantassumptions in enough detail and that you explain the backgroundsufficiently. Try to anticipate the questions your readers willask.

Somewhere near the sales forecast, you should describe yoursales strategy-how and when to close sales; how to compensatesalespeople; how to optimize order processing and databasemanagement; and how to maneuver price, delivery and conditions.Explain the details of how you'll achieve these numbersyou've forecasted.

Steven K. Baker, M.B.A., is a financial management expert,helping entrepreneurs and early-stage companies manage theiroperations against the primary financial statements, provide keyguidance in operational management areas, develop strategicbusiness plans and analyze and monitor performance against thoseplans. Contact Steven at sbaker@entrepreneur.com


The opinions expressed in this column arethose of the author, not of Entrepreneur.com. All answers areintended to be general in nature, without regard to specificgeographical areas or circumstances, and should only be relied uponafter consulting an appropriate expert, such as an attorney oraccountant.

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