How To Forecast Your Small Business

Forecasting your small business is vital especially when your a new, small business owner. Owning a business is exciting! You finally get to do things your way and turn passion into profit. A new business owner is often enthused and optimistic about the direction of their new company but often have no idea or interpretation on how to predict future sales. If you’re a new small business owner or a veteran that wants to make they’ve crossed their T’s and dotted their I’s, then keep reading for tips on how to forecast your small business.

Why Does Forecasting Matter in the First Place?

Forecasting gives your small business a financial foundation. After assessing your sales forecast, you’ll be able to create then profit and loss statements, cash flow, and a balance sheet. Besides that, you’ll be able to narrow down what the actual goals are for your small business. These goals include how many customers you hope to gain and what they’ll spend on your services or products. Your sales forecast will help you to assess what investments are profitable versus what’s costing you more money. You’ll also see the financial improvements needed to enhance your small business.

Other aspects that need assessment is the cost of marketing and customer acquisition along with how much money you’re spending in each department such as administration, HR, and operating the business overall. For your business to be successful, you need to make sure that your expenditures are less than your sales. One way to calculate this is a “return on investment,” or ROI formula.

How Intricate Does My Forecast Need to Be?

Assess the things that matter. You don’t want to be broad, nor do you want to till over each expense. If you own a restaurant, then you don’t want to create a sales forecast for each item on your menu. What you might want to do is separate the forecast in categories such as “lunch” or “desserts.” In the case of a retail store, you’ll want to categorize your sales by the items that you sell, such as “tops” “bottoms,” “outerwear.” The rule of thumb is to create no more than ten categories as not to feel overwhelmed.

Utilize a “Bottoms-Down” Approach

A “Bottoms-Down” approach is a realistic way of looking at your small business’ success. Instead of saying, “On average, 1 million people buy cell phones each year, and I will receive a small percentage of that”, it’s best to assess how many customers actually see your ads, click on your company’s website, and then come up with an average on how many actually buy cell phones and what they spend.

PL Consulting Can Help You Plan Your Budget!

PL Consulting offers a diverse range of bookkeeping and other financial services. Each of our services is customized to fit the needs of our client and his or her business plan. Our team can help you with each step of your business from organization, to budget, to financial maintenance.  We are located in Pikesville at 119 Old Court Rd Baltimore, MD 21208. Contact us at 410.764.3731 or info@plcfo.com so that we can assist you with your bookkeeping needs. Remember to stay up to date with everything PL Consulting by following us on our social media platforms via Facebook, Twitter, and LinkedIn.