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.

More Here

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.

The Unique Selling Position (USP)

The Unique Selling Position (USP) – How Brand and Benefits Fulfill Customer Needs



This is the key marketing program for small advising business to compete with larger firms. Define your market niche, and then use your USP to fulfill needs in that niche.



You have gone through special training, maybe even achieved accreditation or certification in a given field. You may even have a Brand. How do you transfer your skills, your education, your training (your benefit package (BP)) to develop a marketing program that communicates how your unique benefits fulfill your target market’s needs? It’s by developing your USP that communicates your benefits. How do you develop an USP? First we have to understand what a need is and how your USP communicates that your BP will fulfill those needs.



The “Holy Grail” of marketing is called a need. Needs are internal human drives that force humans to seek specific “things” to reduce the force of the drive. All services and products have elements called benefits that are the key to satisfying needs. Marketing is the science and art of matching benefits to target market needs.



The matching of benefits to needs is the primary function of any business. Until recently marketing was often thought of as a division or function within a firm. Many firms are now considered marketing driven firms. The recognized leading scholars in the marketing discipline now consider that the sole reason for the existence of a free market firm or organization is to deliver goods and services whose benefits match the needs of the market place. Understand that this implies that all resources of an organization/firm are committed to this action.



What is a need? Perhaps one of the best needs models is that of Abraham Maslow. Maslow developed a model known as the “hierarchy of needs”. There are many other needs models, but Maslow’s model has stood the test of time in social science literature. It has as its basis five different level of needs.



These five levels of needs are: physiological needs, safety needs, social needs, esteem needs, and self-actualization needs. You might find it useful to look up Maslow on the net and become more familiar with this theory if you have not been exposed to it. This is another good model to keep handy and ask yourself “my BP most important benefit satisfies what need level (s)”.





Marketing has developed significant tools to discriminate product benefits. These are used a predictive models for market acceptance. What does it mean to match a benefit to a need? It means that some form of communication from the organization seeking to deliver a good or service convinces the intended target market that the product/service will indeed satisfy the markets need.



Some benefits of particular products are so strongly related to needs that little “marketing” communication is needed. Gasoline for your car. Milk, bread, and toilet paper at the super market. Insulin for diabetics and antivenin for snake bite victims. Some of these items are commodities - meaning that price is often the key selling point. Some are specialty items that are so import that quality is more important than price, but the price/value ratio can also be important in these products.



Marketing communications are often highly visible elements in the marketing mix of a firm. Yet there are other marketing elements such as product quality and channels of distribution that can change the markets perception of how well the product’s benefits meets its needs.



Your BP is a unique set of benefits. No one else has the same exact BP. The best place to start developing your USP for you BP is your resume. The small business advisory services should be a relationship driven business. The development of customer loyalty should be a target of every small business advisor.



Step 1 – Translate You BP into A USP



With your resume in front of you, ask yourself – what specific things did I do that I was very good at? Each person is different but here are some examples:

• I was very good at evaluating Cost of Goods Sold analysis which translates into pricing model development for small business
• I was very good at evaluating staffing for operations which translates into reviewing employee expense levels for small businesses
• I was very good at building sales organizations which translates into building a sales model for small business
• I was a CFO which translates into I can build income/expense and balance sheets to help small business owners become professional managers
• I was a successful operations manager which translates into, I can help you build your process so they easily expand when you do (scalability)

Each accomplishment on your resume represents an element(s) in your BP that you need to translate in the benefit that fulfills the needs commonly found in small business. That is focus of our USP development package. In a two one hour sessions we help you determine your BP and then help you create your USP and suggest how to integrate it into your marketing program.



From Rolling 10 letters to newsletters to your website, the development of your USP will communicate your brand and how your benefits will fulfill needs for small business. At the same time it will give you focus for you niche markets and raise the productivity of your marketing program.

Challenge No. 9: Knowing How to Compete

"My best advice for competing successfully is to find your own distinctive niche in the marketplace. It could be price, or variety, or service . . . whatever it is, stick to it."



To keep customers and add new ones, owners stress the value of knowing how to compete. They have learned through experience that there is a difference between "just plain competing" - for example, relying on low prices - and knowing how to compete effectively. Owners believe that competitive savvy means being true to what made them successful in the first place - keeping the integrity of their original vision, growing strategically, and above all, using their strengths as leverage in the marketplace. All this is achieved while keeping an ever-vigilant eye on what the "other guys" are doing.



Again and again, owners stress the value of adhering to their original plan. "My goal is to make my business profitable without compromising our values," stated one toy retailer.



To achieve his goal, the retailer concentrates on his distinctive niche. "People come to us because they like our personal service," he explained, "but sometimes they only have so much money to spend. We have overcome this by becoming more of a specialty store."



Owners sometimes struggle to uphold their commitment in the face of stiff competition - but they find that maintaining the integrity of their idea and focusing on their strengths are the best long-term competitive strategy:



"I've seen our industry going through price-cutting that is absolutely staggering," noted a construction equipment lessor, "but I have not participated in it. Yet I have grown and prospered and make a nice profit, and we are consistently the highest-priced people in the marketplace. In the long run our quality shows our customers that we are the cheapest to do business with. You spend an awful lot of agonizing evenings and days trying to decide whether to participate in the price-cutting game - do you try to just gain market share and kill the competitors? If you have a quality product, you probably will kill your business at the same time. It takes guts and commitment to withstand that, to rally your sales staff around you and say, 'we are not the cheapest, but we are going to be the best.'"



To keep capitalizing on their strengths while sales increase, most owners set a goal for controlled growth.



"You can grow too fast," noted a contractor. "You don't want to take on more projects that you can complete. And, you don't want to take on more than you can finance."



How do owners expand their customer base? Most rely on a variety of methods. Eventually, they develop a mix of keeping their sales staff motivated and marketing effectively.



"You learn better sales and motivational techniques," said one wholesaler. "Make sure your people continue to learn new ways of selling." Effective marketing involves communicating the benefits of your product or service to obtain new customers. Owners rely on a variety of methods, usually tailored to what works best for their particular business.



"Word of mouth is big," said one retailer. "We live in a community that is pretty good about passing on the good word." This owner also used advertising and the yellow pages to keep his name out in front of the market. In general, he advised to "find what works and stay with that." Those who could afford it found value in tapping the expertise of outside marketing consultants.



Of course, effective marketing inevitably includes being aware of your competitors' activities. "You have to be very cognitive of the competition and what they're doing," noted an automotive glass replacement shop owner. A businesswoman explained that "knowing where you stand relative to your competition allows you to position your own product in relation to the market" - referring back to the theme of knowing where your strengths are and capitalizing on them.



It is at this point that pricing does become an issue for small business owners. Inherent in the concept of small business is that you cannot discount on low volume - so to make a profit while being price-competitive, owners advise that you establish an identity, stick to it, and communicate it.



"What do you give your customers that your competitors do not," asked one successful owner, "and what is that extra something worth to your customers? That's the whole concept of value-added services, and that's how you establish your prices."



"To get higher prices," advised another entrepreneur, "do something different that no one else is doing."

For my Youtube videos:
http://035c417.netsolhost.com/WordPress/sample-page/

Challenge No. 8: Satisfying Customers by Providing High Quality

First and foremost, recommend owners, commit yourself to providing quality. This establishes and maintains credibility with your customers.

"You must be willing to commit yourself to supplying the absolute best product of the industry you go into. Not being an also-ran but telling yourself, 'I am going to throw a touchdown every time I open the doors in the morning.'"

Deliver the best possible product or service and do everything you can to ensure that your customers are satisfied. This is the creed by which small business owners everywhere live. Upholding it is a constant challenge.

Another business owner put it in direct terms: "Your customers are going to dictate whether or not you are going to succeed. If you don't please them and if you don't listen to them, you won't succeed."

"My theory in business," explained one owner, "is if I do a good job for you, I hope you tell one or two of your friends. If I do a lousy job for you, you're going to tell everyone you see. Never forget that you have competition."

It's important to build and develop credibility because it builds your business. Yet, as one owner stated, "Growth and reputation are the hardest things to come by."

The owner of an interstate trucking company explained that "the one common thread through every type of business is people. It's still a people's business. You'd better have credibility. You'd better have the talent to do what you're supposed to do, first of all, but that's only just a part of it. Get credibility and maintain that credibility. Know that the people you're servicing are going to say good things about you to other people - because that's how you're going to build your business."

This commitment to quality is indeed vital. Just look at how seriously small business owners take it: "Make sure your quality of work is still top-notch and has been from start-up. Make sure you haven't slid or suffered, that your name and your recognized quality are still there," advised one.

Customers are the foundation of your business. Thus, it is absolutely essential to do everything possible to please them. Often, initiating dialogues with customers can be of enormous value in helping to provide better service. "We wanted to evaluate the reputation of the company we purchased," explained a printer, "so we went directly to clients to find out exactly what they thought about it."

"The response was tremendous," he continued. "They'd never had someone who really cared enough about their business to ask them how they wanted the products produced for them. That feedback on a direct basis with my other partners was invaluable. It turned things around for us."

Small business owners find that quality is still the best way to please customers. "Make that product better than anybody else can," advised an owner. "Do the best job that you possibly can."

As a business grows, it's important to maintain quality - but when sales begin to increase, it can be a major challenge to keep the original commitment to the quality and benefits of your product. Thus, most businesses set a goal for controlled growth.

"Whatever credibility you may have built up on your reputation or your performance suffers if you've got more work than you can handle," offered an owner. "You can't properly perform it. You can't properly manage it. Your work starts getting shoddy. That will destroy quite a bit of effort you've put into getting there."

Sometimes satisfying customer requires taking extraordinary measures, but owners believe it's the best way to maintain their reputation and protect their business.

YouTube: http://youtu.be/Sb1QdTqxCTk

Small Business Management for the Kindle