Sales Forecasting and the Business Plan

Sales Forecasting and the Business Plan

Summarize the data after it has been reviewed and revised, for your goal is to integrate sales forecasting and the business plan. The summary will form a part of your business plan. The sales forecast for the first year should be monthly, while the forecast for the next two years could be expressed as a quarterly figure. Get a second opinion. Have the forecast checked by someone else familiar with your line of business. Show them the factors you have considered and explain why you think the figures are realistic.

Your skills at forecasting will improve with experience particularly if you treat it as a "live" forecast. Review your forecast monthly, insert your actuals, and revise the forecast if you see any significant discrepancy that cannot be explained in terms of a one-time only situation. In this manner, your forecasting technique will rapidly improve and your forecast will become increasingly accurate.

Forecasting Sales and Gross Profits

Development of your profit plan should usually begin with a forecast of your expected sales and gross profit for the coming year.

The sales and gross profit must be considered together since they are so closely interrelated. Gross profit percentages are determined by pricing policy, which also affects expected sales volume. A decision to increase the expected gross profit percentage will usually tend to decrease expected sales, while reducing the expected gross profit percentage should increase sales.

A second major reason for beginning the profit plan with a sales forecast is that the volume of expected sales often determines a number of other factors such as the following:

Expected changes in variable expenses, those expenses that tend to change in direct proportion to changes in sales. These could include expenses such as sales commissions or delivery costs.

The impact of the added sales volume on the various fixed costs of operating your business. These costs, by definition, do not tend to vary in direct proportion to changes in sales volume. However, substantial increases in sales over an extended period can force an increase in many fixed expenses. For example, a sales increase realized through the addition of many new accounts could affect bookkeeping and credit costs.

The ability of present resources such as storage space, display area, delivery capability, or supervisory personnel to accommodate the added volume.

The need for funds to invest in increased inventory or accounts receivable to accommodate sales increases.

Cash generated from operations to meet current operating needs as well as expansion requirements, debt repayments, and owners' compensation.

Realism

A realistic sales forecast must rely on careful analysis of market potential and the ability of your business to capture its share of this potential. The forecast should not be based upon "what you would like to do" or "what you hope to do." It must be "what you can do" and "what you will do."

Know Your Costs

If you want to have a profitable business you must know your costs.

An owner-manager should know costs in detail. Then, you can compare your cost figures as a percentage of sales (operating ratio). Be certain that your costs are itemized so that you can put your fingers on those that seem to be rising or falling according to your experience and the cost figures of your industry. When costs are itemized, you can spot the culprit when the overall figure is higher than what you had budgeted. Take advertising costs for example. You can catch the offender if you break out your advertising expenditures by product lines and by media. In addition, a thorough check of inquiry returns from advertising will help to avoid unproductive publications.

In knowing your costs, keep in mind that the formula for profit is: Profit equals Sales minus Costs.

A Few Words on Determining Costs

Many businesses fail or have poor results because they don't take into account all the costs associated with producing their product or service.

In most businesses, costs can be broken down into two categories:

1. Fixed costs: These are overhead costs that don't change, regardless of production levels. They are sometimes referred to as overhead costs or indirect costs.

2. Variable costs: These are direct labor and material costs that increase or decrease in direct proportion to the amount of goods or services produced. They are sometimes referred to as direct costs.

Determining the total costs of producing your product or service, and deciding which costs are variable and which are fixed, will have important implications for your overall financial planning and decision making. This will have implications for the price you charge and the volume of product or service you produce.

Sometimes it's difficult to determine if a certain cost is fixed or variable. For example, in most small businesses some employee costs are fixed and others are variable. Direct labor costs associated with the actual production of your product or service are considered variable costs. On the other hand, the wages paid to staff who work in areas such as administration or sales are usually considered fixed overhead costs.

Your accountant or bookkeeper can help you identify which of your costs are fixed and which are variable.

Sometimes your total fixed and variable costs do not add up to the true costs of producing your goods and services. This is because intangible costs, such as machine set-up time, idle time, and time for estimating and bidding on jobs, cannot always be calculated. If you cannot accurately calculate these factors, a miscellaneous expense element must be added to your cost calculations.

Know Your Product Markup.

Be certain that the pricing of your products provides a markup adequate for the kind of profit you expect to achieve. You must keep constantly informed on pricing because you have to adjust for rising costs and at the same time keep prices competitive. Knowledge about your markup also helps you to run close outs with your eyes open. Continuing to make a product that only a few customers want is an effective merchandising tool only when you use it on purpose - for example, to hold or attract buyers for other high markup products. Don't hesitate to drop a loser from your line.

Profit Orientation

Profit Orientation

Why do some business owner-managers hit the profit target more often than others do? They do it because they keep their operation pointed in that direction. They never lose sight of the goal - to finish the year with a profit. You must control the activities of your company rather than being controlled by them and manage your profit orientation..

A beginner rarely shoots a hole in one, hits a bull's-eye, or hooks a prize-winning trout. Topnotch performance in golf, shooting, and fishing requires knowledge, practice, and perseverance.

Similarly, in small businesses, year-end profit comes to the owner-manager who strives for topnotch performance. You achieve it by knowing your operation, by practicing the art of making timely, balanced judgments and by controlling the company's activities.

Know Your Business

The time-honored truth "Knowledge is power" is especially pertinent to the owner-manager of a small business. To keep your company pointed toward profit you must keep yourself well informed about it. You must know how the company is doing before you can improve its operation. You must know its weak points before you can correct them. Some of the knowledge you need you pick up from day-to-day personal observation, but records should be your principal source of information about profits, costs, and sales.

Know Your Profit.

The profit and loss statement (or income statement) prepared regularly each month by your management consultant is one of the most vital indicators of your business's worth and health. You should make sure that this statement contains all the facts you need for evaluating your profit. This statement must pinpoint each revenue and cost area. For example, it should show the profit and loss for each of your products and product lines as well as the profit and loss for your entire operation.

It is a good idea to have your profit and loss statement prepared so that it shows each item for the current period, for the same period last year, and for the current year-to-date. For example, a P&L statement for the month of November would show income and expenses for the current month, for November last year, and totals for the eleven months of the current year. Many corporations publish their annual reports with several previous years so stockholders can compare earnings.

Comparison is the key to using your P&L statement. If your accountant is not already furnishing figures that you can compare, you should discuss the possibility of having them provided.

Financial ratios from your balance sheet also help you to know if your profit is what it should be. For example, the ratio of net worth (return on investment ratio) shows what the business earned on the equity capital invested.

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THE 13 BEST MARKETING TIPS FOR SMALL BUSINESSES

THE 13 BEST MARKETING TIPS FOR SMALL BUSINESSES

1. The most valuable sales tool in marketing is the internet. In fact, the most valuable tool in marketing at any cost is a website or blog. It can be a sales tool, an information tool, and build brand loyalty. It's a powerful tool, learn about it and use it Now.

2. The best formula in marketing is 'New product offers benefit, benefit, benefit." Use this to create the headline of your press releases and advertisements, for envelope teaser copy, and for the beginning lead of your brochure. Example: "New lightweight tennis racket makes your swing faster, more powerful, and more accurate." Or 'New keyboard offers faster typing, greater accuracy, and is less tiring."

3. The most valuable single sheet of paper you can create in marketing is a press release. You should be sending press releases every month.

4. The most effective trick I've learned in 25 years of writing is this: When you are having a tough time writing, just start anywhere. Start writing anything, then go back and cross out your first sentence. On really bad days, go back and cross out your first paragraph. This immediately pulls you into the heart-and the electrifying part-of your copy.

5. Send more than one piece of mail or email to follow up serious inquiries and sales leads. Remember, a campaign is not a single letter or brochure, but a sustained effort over time. And you if really want to make a sale, call that person within 24 hours of getting the inquiry.

6. The 12 most valuable words to get any press release published are, "Are you the person I should be sending this press release to?" Before sending any important press release, call the magazine or newspaper editor and say these 12 words. Even if you know darn well he or she IS the correct person, you should still call and ask this question. Asking this question positions your call as 'Can you help me?' which invites most editors to do just that. Then send your release-they'll be looking for it, and will try to help you further by publishing it.

7. For Business to Business create a blog series-in advance-to get new business. Up date your blog on a continual basis. I call this 'multiple exposure marketing,"

8. Always use a thank-you letter to acknowledge when something nice is done for you. No, a call is not the same. A thank-you call is forgotten in a day, but the impact of a written thank you can last a lifetime. A small gift works very hard if sent with this letter, but it's not necessary.

9. Write your objective first. When you start to write any business communication, always figure out and state in writing what you are trying to accomplish. For example, an ad objective may be to generate maximum direct orders, or to get as many leads as possible, or to generate retail store traffic. If this document works exactly as you wish, what would you like to have happen? Write this objective in the upper right-hand comer of your paper so you can refer to it often. Compose all of your material specifically to fulfill your objective. Writing the objective first clarifies your writing, defines your purpose, and gives it more focus.

10. if you'd really like a response from a personal letter, include a return envelope in it with a live stamp on it. It's amazing what this does! Your recipient will either send it back right away or keep your stamped envelope on his desk for days trying to figure out what to do with a letter addressed to you with a live stamp on it. It'll increase your response or it'll drive them nuts.

11. Test an the variables anytime you run a web marketing campain. Test everything, although not all at once. Whether your responses and profits-are up to your expectations or not, as your campaign runs longer and longer, test higher and lower prices, copy style and approach, smaller, multimedia formats, lists, and list sources.

12. Take your time writing any material you use, print or web or radio/TV. No one will ever know that the one-page letter they received took you three weeks to write. Just make sure that when you use it, it's perfect. When you are done creating, have several people look at it, and get their opinions. Remember, there's a big difference between a friend saying he would buy your product and a stranger seeing your marketing communications and sending you a check.

13. Don't be afraid to ask for the order-several times-in a direct mail solicitation. While I usually don't repeat myself unless well juiced, I make an exception to this rule when it comes to asking prospects to call and to send in their order. If the recipient doesn't call or send an order, the piece fails. For best results, be very explicit and tell the reader exactly what you want him to do-twice in the body copy, and again in the PS.