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How do I create a sales forecast for my business?

A sales forecast like a weather forecast is at best an educated guess and at worst totally unreliable with factors that were unforeseeable changing the actual outcomes. So the first thing to know is that although you should create your forecast with all the data you can collect to make it as accurate as possible. It is just a forecast and as with any prediction of the future has the element of a crystal ball that can make it more interesting.

The first thing to do in creating a business forecast is to gather relevant data. Finding businesses like yours and how they have done. Checking on your location and what is the standard for businesses around you. Yes, finding out your competitors numbers is a great way to start collecting your data. Obviously taking into consideration whatever differences in service or product you plan to use to have an edge on your competition will be a part of your forecast as well. If you have a large budget you can hire someone to do the market research for you, but it is a valuable education for you to do for yourself as well. Finding out what the past has already done in your market is a great way to learn for the future.

The next step is to create a standard of measurement you will use to calculate. For example if you are a services business, measure by quarter hours of time, or if you are a product based business, measure by units sold. Then establish an amount you will charge per unit and then forecast how many units you will sell. You also need to establish the cost per unit- this is the amount you have to pay to give each unit. For a product based business this is a measure of the component parts of your product and how much it costs you to manufacture it.

A good forecast also includes a breakeven point or measure of when you have sold enough products to cover production costs as well as your overhead. We hope that the forecast will go beyond just breaking even though and start into the next part of our forecast which is the profit.

The profit forecast is the most critical because this is the number that will tell you if your business idea is viable.Profit is the goal of all businesses and is the number banks will use to determine if you are a good loan risk as well as investors. This number should be able to be less 10-20% sales and still be a significant amount. Most of us when guessing at the profitability of our ideas aim higher than the market potentially will bear.

The most important part of a forecast is the follow up. Just like the weather man changes his forecast every day, so too you need to keep your forecast up to date with the history of sales you actually generate. All things on a sales forecast can change and so you must be flexible in your numbers and willingness to change direction when the actual results start coming in. Your overhead can also change and create a need for new numbers. For example if one of the suppliers of a component of your product goes out of business and you have to start getting it from somewhere else this will change your overhead and profits.

A sales forecast is a necessary part of your business plan and although it will change as your business develops and you get more actual history behind you to measure your sales by, it is an important tool for building your business.

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