Written by Stefan Martinovic for Gaebler Ventures
Sales forecasting isn't just for big companies. Small business owners who develop good sales forecasting tools have a much easier time than those who never forecast.
As an entrepreneur, you can certainly appreciate the unpredictable nature of small business.
However, there are steps you can take in order to gauge future sales and make plans for the future with some accuracy.
Forecasting helps to provide speed and accuracy and offers data needed to make necessary adjustments that will benefit the business. Many large corporations maintain forecasts updated on a quarterly, or even monthly basis that have been revised to account for environmental factors as well as the changing business climate.
Depending on the needs of your business and the application of the forecasts, you can choose to update the forecasted numbers as often as you see fit.
Developing an accurate forecast is done by performing an analysis of past performance and gauging future obligations and anticipated future contacts of the business. Past performance indicators as well as sales trends are most likely to indicate future performance. If your business is experiencing a boom, naturally your forecasts would reflect current sales combined with anticipated rate of growth, holding all other factors constant. Many businesses which fluctuate seasonally, such as farming, must depend more heavily on past performance numbers from previous years in order to gauge seasonal sales impact. Judging winter sales of tomatoes based on summer sales figures seems somewhat illogical, and it makes more sense to base projections on the previous winter's sales.
Enterprise resource planning software systems can be a valuable aid in determining forecasting parameters as well as to manage volume and inventory numbers. Software developers such as Oracle have developed comprehensive systems aimed at the analysis and projection of business financial figures. With a business of a smaller scale, you might find that you have a more in-depth knowledge of your business practices and will most likely be able to draw up more accurate forecasting numbers manually than with computer assistance.
Forecasting does have its limits, however. Small business is volatile and in large part depends on human action. Other outside factors can affect actual sales and production numbers as well. While your forecasting models may be theoretically flawless, events such as natural disasters or economic downturn can significantly affect your financial figures.
By developing a reliable and consistent forecasting methodology, you can enhance the prowess of your company by being able to predict future sales and anticipated costs with an acceptable degree of accuracy. By having reliable future data to base decision off of, you can be sure that you will be able to make the most of corporate strategy adjustments.
Stefan Martinovic has an extensive body of work across the financial services, manufacturing, and retail industries. He is currently pursuing an MBA in Management and Entrepreneurship at The College of William & Mary.
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