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Using Sales forecasting for your business management forecast

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When you are establishing your business plan, cash flow, revenue projects, and sales forecasting should be the key elements. Established businesses have the benefit of relying on figures from the previous year to estimate their sales. New businesses do not have this benefit and must rely on the industry and their consumers to gather information for their sales projections.

Sales forecasts are a great way to guide your business to success. Study your industry and gain a feel for what people are buying. Know your competitors and their prices, establish your prices based off of your competitors. Make sure you establish prices that will allow you to generate revenue and not just break-even costs. Estimate how often you expect your customers to buy per year and project the dollar amount of each purchase. Try not to overestimate, which can be hard to do. Many smaller businesses overestimate their sales forecast and find themselves strapped for cash when sales do not meet their expectations.

If you are working with a bank for financing, you will need to do multiple sales forecasts. This will help your confidence and the bank's confidence if sales fall through for one month, you should have a forecast that will "pick up the slack".

Try using multiple sales figures to determine your sales forecast. You can have huge variations by month depending upon the type of business you are in. For example, if you are in the travel industry, you may see an increase in sales trips to Disneyland during the summer, but barely survive in the fall when kids are back in school. Balance your figures to match off peak times and promotions you can run to increase revenue during that time.

Always be sure to include your expenses in your sales forecast. Manage your cash flow appropriate to accommodate for larger expenses that are purchased by season. Some companies purchase their supplies for Christmas in July and may not get all their receipts until Christmas or later. This can cause large cash flow problems, especially if your bookkeeper isn't staying on top of the finances to make sure you will have that money to pay at a later date. If you purchase vehicles or capital, be sure to include the depreciation expenses in your sales forecast as well.

Be sure to allow for bad debts in your sales forecast too. Determine your sales that will be cash, credit card, and how many are done by you extending credit to your consumer. Allow money for credit card expenses and also for quarterly tax withholdings.

From here, you need to determine how your business will grow. Do you plan to market and sell to existing customers? Are you planning on marketing new products to attract new customers? Make sure to include this in your sales forecast too. This sales forecast will be helpful if you are applying for a bank loan for the company as it shows you have a goal for the company and a way to achieve it.
Always remember to include negative cash flow months in your sales forecast too. When your company is not marketing and is not in a busy season, this is a great time to include negative cash flow numbers since you should expect costs to be a break-even or slightly above break-even.

By keeping a control on your business finances and your cash flow situation, you can make better sales forecasts for the future. Having solid information to base your numbers off will help you make good decisions. You will be able to watch your company grow and produce revenue as a direct result of your hard efforts of making a proper sales forecast.

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Posted by DF
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