Small Business 101: How to Forecast Revenue
To grow your business, you need to be out making sales and working with clients, which you can’t do if you’re stuck in the office working on numbers. This is why most small business owners neglect working on revenue forecasts. On the other hand, if you don’t spend time working on the numbers, your company might fall off track and not grow at the pace you want.
In the end, forecasting revenue is an important part of business management that can help with many different aspects of company growth. When you’re forecasting revenue, do it efficiently, thoroughly and, most importantly, do it right.
What is Revenue Forecasting?
Revenue forecasting is essentially an educated prediction about the financial future of your company based on income generated from all sales channels during a specific time period. The information can be used to determine whether your company can afford to hire new staff, introduce a new marketing campaign or make any other changes in the future.
In addition to financial planning, a detailed revenue forecast can also be used to entice new investors or get a business loan. If you’re looking at getting a business loan, your forecast can be used to determine how much you can afford and how long it’ll take to repay the loan. It’s one of the most powerful planning tools in any business owner’s arsenal.
Forecast Revenue Twice
Business growth is never a straight line. Some months you might be thinking you’re on top of the world. Others, you might be wondering if you’ll be able to make ends meet. Making two separate forecasts for revenue is helpful to anticipate the highs and the lows.
- Conservative Forecast: The first revenue prediction you should make should lean towards the conservative. Assume to hire minimal staff, low price points and fewer changes to the business. Using the conservative forecast, you can see what your company will make at a minimum.
- Aggressive Forecast: Once the initial forecast is complete, make another using more aggressive numbers. Follow your dreams and assume maximum growth. This forecast will help you see the possibilities and maybe even push you to achieve more.
Keep Revenue Forecasts Maintained
Forecasts are meant to be living documents, not viewed once a year and locked away. As your business changes, so should your revenue forecasts. View and update documents at least once per quarter, if not more frequently to make sure that your company is on the right track.
Just because you’re sitting in the office instead of working with clients doesn’t mean that it’s not beneficial to the growth of your business. Revenue forecasting will help you better reach your financial targets and manage new business opportunities in the future.
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