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revenue forecast

How to Make a Dependable Revenue Forecast

Most corporate revenue forecasts never hit their target square on the nose.

But that’s OK. Because as it turns out, “close” counts in horseshoes, hand grenades and revenue forecasts.

A revenue forecast, at its simplest, is just a company’s estimate for how much money it will bring in during a given period. But it’s hardly an intellectual exercise. Sales estimates are the foundation upon which the rest of the company builds its year, from how much is spent on supplies to how many hires are made to how much is spent on marketing and growth.

That being the case, an accurate revenue forecast is essential to a well-run business. And today, we’re going to run you through how to do exactly that — regardless of whether you’ve been in business for years, or you are just starting out.

Revenue Forecasts for Brand-New Businesses

If you’re just building your company and have no previous sales to look back on, creating a revenue forecast is about as difficult as it gets.

But it’s not impossible.

Your first step is a combination of hypothesizing and data gathering. You’ll want to answer a number of questions, either by thinking about them in terms of your product, or by going out and talking to industry experts (who won’t be your competitors) and reading trade publications.

  • Who are your customers? (What age? What gender? What income range? What lifestyle?)
  • What is your geographic target, if any?
  • Do you have any existing competitors? If so, who are they, and what advantages do they have?
  • What is the landscape of your industry right now? (On the way up, on the way down, in the midst of disruption, disrupting another industry?)
  • What kinds of suppliers and other vendors will you need?

The answers to these will help educate your second step, which is drafting a very rough guess of what your sales will end up being.

A very shorthand way of drawing this up is determining a rough number of customers you’ll potentially serve, then deciding how often each year you believe each customer will need what you’re selling. That will give you a rough number of expected sales. Multiply that by an estimated price for your product or service, and you’ll have a very crude – but at least educated – guess as to what your revenues will be in your first year of business.

Revenue Forecasts for Established Businesses

Compared to making a revenue forecast for a new business, calculating an estimate for an established business is a relative breeze. It also should be a little more accurate.

Just remember: Even if you’re working with solid previous data, no forecast is a perfect crystal ball.

Start with your prior-year’s sales. You can slice them and dice them however you want – most businesses do so by product/service at a bare minimum.

Next, you’ll need to adjust for anything that will be different in the coming year. Do you plan on raising prices? Will you add new products? Will you be expanding into new territories? Do you anticipate adding customers, and if so, how many?

Lastly, you’ll want to consider some of the very same things that new business owners factor in as they’re doing market research. Is your competition increasing? Is the industry as a whole on the upswing? Things like these could also impact the coming year’s results.

Want a Better Estimate? Ask the Pros.

Of course, unless you’re the rare CEO who is both flush with time and a whiz with numbers, your time would be better spent running your company.

So let us handle the estimates.

McManamon & Co. provides a wide array of services for small and midsized businesses, including outsourced CFO and accounting services – such as forecasting revenues, profits, cash flow and just about any other goals you have for the coming year (and farther down the road).

Remember: No estimate is perfect, but an accurate revenue forecast can both set your company on its path and smooth out the road ahead of you. Reach out to us at 440.892.8900 or contact us online today.

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