How Companies and Organizations Use Sales Forecasting As A Tool for Business Planning

Sales forecasting is the process of determining future sales and selling requirements based on information currently available. Sales forecasts are critical to business planning. This is because every department in the organization relies on sales data for planning and allocating resources effectively. Planning requirements may be short term, medium term or long term. Short term requirements are usually determined to meet tactical needs in the nearest future such as production requirements while medium term forecasts are designed to meet organizational needs ranging from months to about 3 years such as budgetary requirements. Long term forecasts are mostly economic in nature and are usually made to meet the requirements of the organization in the long term. E.g. expansion plans.

The benefits of sales forecasting to organizations accrue from how its departments and organs use this information for organizations growth and development. For instance:

The Production Unit needs sales data to help them determine how much more or less quantity needs to be produced, whether or not extra machines and labor would be required for production and how customers are reacting to the product offering of the company.

The Human Resource Unit of the company will need to determine based on the sales forecast whether labor requirements are adequate to meet the staffing requirements of the company both presently and in the future, whether experts/specialists will be needed to champion growth opportunities etc.

The Purchasing Unit will need sales data to determine whether purchasing requirements will have to be increased or decreased. They will also need to determine stocking options and reorder levels, manage supplier relations to ensure raw materials purchased are delivered in the right quantities and at the right time to meet production. They will also assist to determine when to buy specific quantities of materials so as to take advantage of price discounts and avoid price hikes.

The Finance Department will need to make money available for other units to function properly based on the sales forecast made. For instance, purchasing costs which are tied to the requirements of the production unit based on forecasts made. Another example is the cost of recruitment to be made by the human resources department who needs to recruit more staff for the production or purchasing units based on sales data. The finance department will also need to ascertain revenue anticipated for long term planning and the need to fund capital costs that may border on expansion.

The Research and Development Unit works with sales forecasts to determine the effectiveness of product launches, designs, quality, technology and features. These data also serve as feedback necessary o improve product offering for the organization.

The Marketing Unit will need sales forecasts to manage the targeting of marketing activities bordering on sales and sales promotions, advertising, demographics, competitive strategies, customer preferences etc.

Because every department relies on sales data for efficiency, it is imperative that this data be reliable, accurate, timely, complete and workable to succeed.

Valentine Okolo
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Essential Tips for Writing The Financial Analysis of Your New Business Plan

By Valentine Okolo

The financial analysis section of your business plan should contain the details for financing your business now, what will be needed for future growth as well as estimating your operating expenses. Starting a small business doesn't have to require a lot of money, but it will involve some initial investment. There are a number of funding options including:

Personal Financing

Small business loans

Small business grants

Angel investors

How you will finance your business is crucial. There are several questions you may need to ask yourself before arriving at a funding option.

These questions include:

·         What initial investment will the business require? How much will also be required to run on a daily, weekly, monthly and yearly basis?

·         How much control are you willing to relinquish to investors?

·         When will the business turn a profit? Which expected week, month or year?

·         When can investors, including you, expect a return on their money?

·         What are the projected profits of the business over time? One month, year, two years, five years?

·         Will you be able to devote yourself full time to the business, financially?

·         What kind of salary or profit distribution can you expect to take home?

·         What are the chances the business will fail?

·         What will happen if it does?

·         And the BIG QUESTION? How long can you sustain the business if you are yet to make profit? In other words, you are yet to break even.

Most people make the mistake of calculating the initial startup costs and then jump right into the business. This is extremely wrong.

Unless you can reasonably estimate how much it will cost you to startup, hit the ground and run the business financially for at least 18-36 months and reasonably obtain these funds(assuming the business is yet to make profit for this period of time and taking into consideration all operating costs for this period) then I advise you do not start up.

The truth is that no business starts making profit immediately. In making your financial projections, you must anticipate that it takes time to build customers and a new business may pick up slowly, operating costs may not be exactly as earlier anticipated, more hands may be required meaning more expenses and an un-eventuality may occur.

There are a variety of money sources for small business including grants, small business loans, angel investors and much more.

Debt & Equity Financing: Debt and equity financing are two different financial strategies: Taking on debt means borrowing money for your business, whereas gaining equity entails injecting your own or other stakeholders’ cash into your company. This is why I asked the question at the introduction "what do you do with your income”

Personal Income: In my opinion, personal income is the best way to raise money for your business. Trust me, it eases a lot of stress from you and you have time to adjust properly and grow your business. Decide how much you need to save monthly/yearly in order to raise capital for your business. Don’t worry if it takes years to raise this. It is better to start with sufficient capital, than to rush yourself out of business. Better still, start small. It is better to start small and grow, than to start big and crash out.

Friends & Family: Finally, consider friends and family members. This can be a good source of raising capital.

Small Business Grants: Grants are monies/financial assistance which are not a loan, and do not need to be paid back. They are usually granted by governments or special organizations as seed monies/ start up funds for new businesses in other to promote growth and development.

First Time Small Business Loan: The best place to start when it comes to finding your first small business loan or credit is not with your banker, accountant or lawyer but with you. The business is the owner so your personal credit history is an important aspect in getting a small business loan. However, banks can be a good source for generating small business loans. Always ensure that the terms of repayment are such that are favorable for your business growth and would not rub you off working capital. It is advisable you contact a financial adviser before taking such loans to avoid making a bad business decision.

Find an Angel Investor:  An angel investor is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. An angel investor can help take your company to the next level in one a jiffy.

Article By Valentine Okolo