Sales forecasts and budgets are essential components of a business plan. Both require extensive planning and preparation and must clearly outline the short- and long-term needs of a business. Having a well-developed sales forecast and budget ensures that business owners can project their revenue and expenses. Preparing in advance helps to set realistic business goals and minimize unnecessary loss or expenses.
The most essential purpose for writing a sales forecast and budget is to predict a company’s projected income and expenses. A sales forecast and budget is a tool that can help entrepreneurs make effective use of their finances, according to Dunn and Bradstreet. Entrepreneurs should use a sales forecast and budget to set realistic goals by allocating funds for production and operations, as well as employee salaries. Other factors, such as the amount of finance and monthly expenditures, can easily be determined by developing a sales forecast and budget. Before working on a sales forecast and budget, however, it is helpful to develop a business plan. Sales forecasts and budgets can be presented to prospective investors; they give credibility to a business plan.
A sales forecast should provide a monthly prediction of revenues. Depending on the type of business, sales forecasts can be planned for the entire year. Preparing a sales forecast in advance allows business owners to devote their time to managing a company’s production, employment and financing needs, according to Business Link. Prior to developing a sales forecast, business owners should consider factors such as staffing needs, market research data, an existing or projected market share and available resources.
Depending on the size of a business, a sales budget can consist of either a single operating budget for the entire year or individual budgets for specific aspects of a business, according to Business Link. A budget should include the amount of available cash reserves and future projections, as well as costs that will remain fixed and costs that are subject to change over time. A well-developed budget should indicate a company’s anticipated return on investment and overhead.
The reliability of a sales forecast and budget depends on the time line that is covered and the amount of available information. Other factors such as the market and demand for a product or service require additional research and advance preparation. Sales forecast and budgets do not have to be perfect; they should, however, be realistic. Business owners can develop a sales forecast and budget that covers month-to-month or one- to three-year projections, according to “Entrepreneur.”
Selam Nuri has been writing academic articles and working across the curriculum since 2001. She has been published online at various websites and earned her Ph.D. in cultural anthropology in 2006 from the City University of New York.