Your sales forecast is the backbone of your business plan. People measure a business and its growth by sales, and your sales forecast sets the standard for expenses, profits and growth. The sales forecast is almost always going to be the first set of numbers you’ll track for plan vs. actual use. This is what you’ll do even if you do no other numbers.
When it comes to forecasting sales, don’t fall for the trap that says forecasting takes training, mathematics or advanced degrees. Forecasting is mainly educated guessing. So don’t expect to get it perfect; just make it reasonable. There’s no business owner who isn’t qualified to forecast sales — you don’t need a business degree or accountant’s certification. What you need is common sense, research of the factors, and motivation to make an educated guess.
Your sales forecast in a business plan should show sales by month for the next 12 months — at least — and then by year for the following two to five years. Three years, total, is generally enough for most business plans.
If you have more than one line of sales, show each line separately and add them up. If you have more than ten or so lines of sales, summarize them and consolidate. Remember, this is business planning, not accounting, so it has to be reasonable, but it doesn’t need too much detail. Here’s an example, from a sales forecast for a local computer retail store.
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| Snapshots of spreadsheets |
It’s a simple example. You should recognize the arrangement of rows and columns. I’m just showing you a portion of the spreadsheet, because it has to fit on the page.
Notice the predictable structure. First you have units, then prices, then you multiply price times units to get sales. It’s simple math, but breaking it up like that makes things easier later on, when you look at what went wrong (and remember, something will go wrong; business plans are always wrong).
Even if you’ve never done a spreadsheet, you can do this one. The hard part is remembering that you can estimate, you are qualified, and nobody else can do it better. Just take a deep breath, calm down, and make an estimate.
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| Spreadsheet logic |
Or, if you prefer, read on. Let’s talk about working from past data, estimating entirely new products, your data analysis qualifications, and some other factors. Then you can make your forecast.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
