Are You Accurately Predicting Your Revenue Forecast?
The fate of your business’ health and prosperity goes far beyond waiting for revenues to exceed your expenses. While this is the goal, there are ways to be proactive about forecasting your expected growth. If you have an approximate understanding of what’s coming in, you’ll have an even clearer picture of what your costs should be.
So, why is revenue forecasting important? It outlines your business’ expected growth, cash flow, and gives you an approximation of how much money your business will make over the course of the year. When you consider how to forecast revenue appropriately, you’ll always want to examine the following three factors.
Remember, we’re not talking about exact figures. For this reason, you can take a look at the history of cash flow in your business from recent years. Revenue trends from previous years will give you a decent estimate of what you can expect in subsequent years. This is especially helpful if you’re planning on making significant updates to your business strategy. Strategic changes may include anything from adding a new line of products to a complete branding overhaul. Before making any big changes, you’ll want to know if the upgrade is even viable without threatening the livelihood of your business.
Again, it makes sense to examine what we know for certain before we can make estimates about what’s to come. Your fixed-costs are fixed for a reason. A picture of your yearly expenses includes your regular costs, occasional/variable costs, and a rough estimate of unexpected costs. If you anticipate unexpected costs on the higher end of the spectrum, you’ll give yourself a bigger safety net.
Perhaps one good thing that comes from having competitors is seeing how they perform. You’ll want to look at competitors who are in a similar growth stage as you. Take a look at the data on a seasonal basis. Seasonal trends hit some businesses harder than others, but they are usually behind the periods of growth and decline. Additional analytics you’ll want to examine include financial reports and case studies in your given industry.
Entrepreneur declares that there are two distinct ways to look at your revenue forecast. Having a more conservative approach means you’ve fine-tuned an approximation of your yearly revenue forecast and you’re sticking to it. Conversely, an optimistic approach means you’re hoping that it all works out and you expect greater success than forecasted. So, what’s best? As the adage goes, you hope for the best and prepare for the worst. A combination and balance of the two create the healthiest mindset of all.
Tobin & Collins know the value of developing and growing a successful business. Contact Tobin & Collins to help get your business’ financial picture as perfect as can be!