One constant challenge I hear from small business owners is that they can’t forecast their sales. After all, how on earth are they supposed to know what’s going to happen in the future? I have two answers to this. 1) you won’t get it perfect, but that’s still not a good reason not to make your best guess and 2) you have more information than you think.
Why should I forecast?
First let’s talk about why this is important. You’re making decisions all the time about the future of your company. Decisions about staffing (when and who), inventory purchases, equipment, location, promotions/marketing, and so much more are all based on assumptions about the future. What if you had a little bit better insight into what’s likely to come? Wouldn’t that help you make better decisions? Of course, it would!
How do I create a forecast?
So how do we forecast? If you have history, that’s a great place to start. What did you sell this time last year? Pay attention to any seasonal cycles. If you’re a landscaper, winter is not going to be great for you. If you own a restaurant, January may be slow. If you don’t have history, start slow, start conservative. You may wish to sell a big number in your second month in business, but that’s not likely. Start small and increase as you have greater success. This will prevent you from outspending your income.
You likely have a pipeline – people or organizations that have expressed interest in your product or service. At each successive stage of your sales cycle, your likeliness of gaining a new customer increases. For example, you may close 25% of your leads, but 85% when you’ve gotten to the point of providing an estimate. This can all be figured out from your sales history – if you’re keeping track.
You have goals and new initiatives. Your business is not standing still. You’re constantly improving, learning and growing. If you’re launching a new marketing initiative, for example, what kind of increase in sales are you hoping for? Take that into account as you’re creating your forecast. Are you launching a new product or service? How many of your existing clients can you sell it to? When launching a new line of business, take into account the advice I offered about to new business owners – start small and increase as you see results. You should also forecast your new line of business separately, so you can see if you’re meeting your expectations and adjust where necessary.
How do I use my forecast?
First of all, this is not a ‘one and done’ exercise. Create a 12-month rolling forecast and update it at least once a month. Include this as part of your financial checklist. (you do have a financial checklist, don’t you? If not, grab mine here.
Use your forecast to monitor the health of your business. This is an important tool. The financials that you get out of your accounting system tell you what happened in the past. Your forecast tells you what to expect for the future!
If your forecast isn’t what you’d like, make changes. If you need to beef up your sales or marketing, best to know that in advance, then wait until you have no customers. If you’re going to need more staff, start looking now and that will keep you from having to ‘settle’ for whomever shows up when you’re busy and desperate. If you’re going to need additional working capitol to fund all of your new orders or jobs, get that line of credit or other financing source in place now, so that it’s ready when you need it.
Having an up to date forecast is one of the few tools that helps you see forward as your navigating your business growth. And seeing where your going makes for MUCH smoother sailing.
If you need help with this, feel free to schedule some time with me here: (https://calendly.com/judi-otton )