So, as a business owner myself I have seen the danger of coasting without a specified plan and benchmarks. On the other side I have seen the motivation that can come from having stretch targets to hit and a solid plan for hitting them.
Here’s some handy info even if your are not so numbers minded about basics that you will need to put in place.
Are forecasts any benefit other than to persuade the bank to finance?
Forecasting i.e. creating a specific Profit and Loss has the same beneficial effect as creating any other plan.
We plan all the time, it is the corollary to chaos.
We may plan sub consciously but we all do it.
If tomorrow morning you’re heading from Dublin to Mayo, you probably won’t go out your gate and take a turn either way depending on your mood.
Either specifically by using google maps or by knowledge already gained you will turn right or left and then continue along a route that one will take you towards Mayo and in what you hope will be the quickest time.
Unless you know your destination there’s no point heading out.
Likewise, with business you need to know where you are headed or aiming for.
Budgets or forecasts let you measure how you are progressing on your business journey.
The main forecast is the Profit and Loss.
The main part of the Profit and Loss is the Sales forecast because without Sales there is no business.
So let’s look at Sales budget exclusively. The rest of the Profit/Loss will follow.
All Sales forecast should be realistic, attainable and based on solid assumptions.
Sales will be the number of units sold or services provided multiplied by the selling price.
To provide the reader or user of the forecasts including the owner with meaningful figures the selling price and the units sold must be built on realistic assumptions.
The price will be based on open market prices and the number of sales must be broken down by sales unit (person).
Sales units/transactions will depend among other things on the size of the potential market, the number of salespersons, the territory covered, the competition etc.
Sales price will depend likewise on competition and current open market price for a similar product/service. If you are above normal market price you will need to indicate why your prospective customers would pay above the norm.
There could be several reasons for this e.g. you are more convenient location-wise, you have a better-quality service, you package the service better etc.
If the assumptions withstand scrutiny you are on the way to having a forecast that can be a benchmark for subsequent performance.
The advice would be don’t start any business without performing at least the first step in forecasting e.g. identify the Gross Sales per week, per month and for first year at least.
Be moderate in your expectations and maybe calculate 3 scenarios which would be the best and worst forecasts and simply pitch the most likely as the center figure between these two.
If you have a reluctance to work out a basic sales forecast, that would not augur well for the future of the business. If figures are not your forte, get help.
Declan “Plan to Succeed” Treanor