Future business planning is based on your business revenue forecast. Therefore, it is essential to estimate how much money you will make each year, how much cash flow you expect, and what kind of growth your business might experience. Unfortunately, revenue forecasting does not give exact numbers for your annual earnings. However, it does provide several methods to help you forecast your revenue accurately.
Here are three tips to help you forecast your company's revenues:
Do your research thoroughly
Forecasting revenue requires a lot of data. First, look at competitors' revenue in similar stages to yours and their predicted seasonal trends and other periods with higher revenues. Then, pull data from your financial reports and analytics, industry case studies, reports, and other data sources for a compilation.
Give a detailed breakdown of your expenses
Get a complete accounting of all your annual expenses. It is more complicated than anticipating your fixed expenses to figure out your revenue. Consider the cost of unexpected expenses and look beyond your regular costs. You should estimate irregular costs on the higher side. Plan for higher prices, and be open to being pleasantly surprised by a surplus in your budget.
Examine your company's cash flow history
Although you cannot predict unexpected growth phases, you can forecast your future revenue by looking at your company's past performance over the past few years. To help you determine the direction of your business, you can look back at revenue trends for similar events.
Entrepreneur suggests that you approach revenue forecasting using two mindsets: an optimistic approach and a conservative one. The promising approach considers the best-case scenario and aims to achieve high success rates for your company. To predict how much revenue your company will generate in the next year, you can use the conservative revenue forecast.
Budgeting and forecasting are vital to understanding what can be done to keep your business running smoothly. If you have questions regarding anything discussed in this article, feel free to contact your controller to learn more.