How can I predict the revenue forecast for my business?
Predicting your revenue forecast and expenses when starting a business is one of the most important, yet neglected, areas of business planning. Many consider that if you have no basis of being accurate, what is the point in being theoretical?
However, there are not many investors that would consider funding a business that has not given good thought to what level of sales are required. Of course, it is also a powerful reality that having reliable financial information will help an owner to make better business decisions.
The measure of business viability and sustainability is often determined by predicting a particular outcome, and allowing sufficient time to respond appropriately to your forecasts. While it may not be easy to determine what your sales will actually be, it is possible to reasonably define the minimum sales you have to achieve in order to survive.
Where do I begin with my revenue forecast?
Start by identifying your costs. These are much easier to research and will form the basis for showing what resources will be needed to run the business. Estimate the key categories of rent/rates/telephone/insurance/light and heat/advertising etc. It is better to over-estimate, as costs usually exceed expectations!
Estimate how much you will need to draw from the business for yourself and for your staff (wages). Also estimate how much opening/replacing stock will cost, if appropriate. Once your costs are identified you can start to appreciate the level of income necessary to cover those costs, which will become your break-even position. However, that is only the first part!
While you can predict sales relative to the above, when it comes to monthly figures, it is pointless to merely take a total figure alone and to divide it by twelve. Rather, it is important to consider your trading year and any seasonality that will be represented. The year will have various peaks and troughs relevant to your sector, for example, customer demand, weather, deliveries, competition. What evidence do you have that supports your assumptions? Do you have a contract guaranteeing sales to begin with?
You will find it helpful to produce two examples, a best and a worst-case scenario. This will give a balanced view. Each scenario may contain aspirational goals that can be modified once you review the two options. For example, you might want to look at a higher pricing model against a lower pricing model, which may affect how many customers will be needed to achieve a given outcome.
Once this part of the exercise is completed, it is helpful to measure your revenue forecast against some key ratios. For example, gross and net profit margin percentages, and number of units or hours required. With gross/net profit, it is usually easier to relate to percentages based on expectations, as fluctuations are often easier to spot this way.
Finally, get your projections reviewed objectively by a professional and independent business support specialist. This will inject a level of reality and challenge your assumptions. Review your projections regularly, (monthly/quarterly), to give you confidence that you remain on-track. Remember, just because you have done the numbers, does not mean they will run according to your expectations, but you will be able to quickly see and adapt to any changes. Think big! If you do, the numbers will help you visualise how you can achieve your expectations. ff
Articles
Help is one call away: how the Growth Hub helpdesk can support you
Are you thinking about starting, growing, or scaling your business? Hear about how the Growth Hub helpdesk can help you by providing the latest business support, tailored to your needs.
New support for York and North Yorkshire businesses as leading regional media figure joins the Growth Hub
Mike Pennington, a familiar name in the UK media industry, has recently joined the York & North Yorkshire Growth Hub as a Business Relationship Manager. In 2023, he'll be bringing his expertise to businesses in our region and connecting them with the Made Smarter scheme.
York, North Yorkshire and East Riding employers urged not to miss out on free skills training
Employers across York, North Yorkshire and East Riding are being reminded that it’s their last chance to take advantage of free training and support through the Skills Support for the Workforce Programme before the it ends in March 2023.
Events
15th February 20239:00 am - 5:00 pmFREE
15 Feb - Harrogate Co-Lab: Business Support Drop-In Session
This free drop-in service based in Harrogate can help answer your questions and direct you to relevant business support, resources and programmes.
22nd February 20239:00 am - 4:30 pmFREE
22 Feb - Pitching Perfectly - To win new business
Are you a small to medium sized food or drink business that wants to win more business and need to plan the perfect pitch? This full day workshop will help you understand what buyers are looking for and give you the confidence to pitch to them.
01st March 20234:00 pm - 6:00 pmFREE
1 March - Ian Howard- The Enterprise Growth Roadmap
In this two-hour session, Ian Howard will introduce The Enterprise Growth Roadmap. Regardless of where you are at right now, whether you are just launching your business, trying to make sense of the number of opportunities available to you or looking to attract external investment, the Enterprise Growth Roadmap Planning Workshop will help you create a framework to develop your own growth strategy together with some simple steps to help you implement it.
Resources
Glossary of Climate Change Terms for Businesses
A free digital glossary defining the key climate change terms relevant to businesses, to help you understand and engage with sustainability resources and support.
2022 Seminar Recordings
We have recently hosted a programme of in-person seminars and other events, some of which were professionally recorded and can now be viewed on our website.
Seminar Recording : Access to finance: Funding growth
This workshop will provide guidance on cost based pricing, calculating your costs before deciding an appropriate margin, as well as covering market based pricing asking questions such as: What value do you add? What are you worth? How do you position yourself?