Expense and Sales Forecasting
Expense and Sales Forecast
Creating a sales and expense forecast is important to get an accurate picture of what your business could or will look like. Typically, business owners will spend 3 times as much as expected and make 3 times less than expected. (Ouch.)
An expense forecast is vital for you and your sales goals, it keeps you on track and keeps costs down. You will need to show all expenses in your business plan and the worksheet below should make it easy to identify what you’ll need to spend.
Creating a sales forecast is not only needed in your business plan but can help you to create important milestones for your business. Sales forecasting is basically educated guessing. If you have past data to draw from, great, but typically being a first time business owner, you won’t. It also takes a bit of common sense. Don’t create something outlandish as a million dollars in sales for your first year unless without a doubt it’s reasonable. Be as conservative and as grounded as possible when creating this. You will need to compare your sales forecast with your expense forecast to make sure you are covering your costs and making the amount of profit you’d like.
You will need to show your sales forecast for the first three years in your business plan. For the first year, you will want to break your sales forecast up by quarters. Then you will want to show your sales growth for the next two years. For our homemade jewelry business, we had decided that we wanted to make and sell 500 pieces of jewelry at $35 per piece in the first year. We think that sales will increase during Q2 because of graduation and in Q4 because of Christmas. Here is what our sales forecast might look like.
This is relatively simple if you only have one product. If you have multiple products to sell, you will need to list them by line item. Now compare this to your expense forecast. Are you making enough money to cover your costs? If not, you’ll need to reassess your numbers. It’s best to run a few different scenarios to determine your sales forecast. From there you are able to create your sales goals and objectives. Any way you cut it, remember, this is your business. You make the decisions. You can decide to charge $3 or $3,000,000 for a product or service, but it’s then up to customers to decide whether or not they will pay your price. Charge a fair price for a good product or service and everyone wins.