If you are looking to start a new business and you are in search for potential investors, you might want to create a solid business plan reflecting the scope of your business as well as a forecast of your revenue generation and organizational growth. Without these documents, getting a serious investor on board is no less than impossible. Even though building the forecast sheets can be a tough and time consuming job that requires a lot of research, and many entrepreneurs would rather spend that time achieving sales targets, however, ignoring forecasts can sometimes prove to be the biggest mistake of your entrepreneurial careers.
Here’s a quick guide on how to forecast revenue & growth for your start up
Start with Expenses:
Before you head on to jotting down the growth and revenue forecast, it is important that you understand your expenses and your overall monthly, quarterly and yearly budget. Start by separating the fixed and variable costs and put up the costs into common categories. For fixed costs you must consider the rents (if your office is on a rented space), utility and phone bills, IT infrastructure costs, human resource salaries, taxation, legal & insurance costs, and advertising & marketing costs. Since marketing, advertising, taxation and legal costs usually go way beyond you expect, its best that while listing your expenses your double or triple those costs to cover for any unpredicted expenses that might incur and put you off balance. In addition to the fixed cost, there are countless variable costs depending on your product or nature of business such as logistics, labor, and customer service. In order to record your expense, you might also acquire bookkeeping software that will help you manage the costs better.
Use Conservative & Aggressive Case Studies:
We all have a certain vision for our business when we start, and in most cases it is a very optimistic view of our plan. When making a forecast sheet for your revenue, it is best to consider both aggressive cases as well as conservative cases to have a better idea of both ends. Study the financial growths of companies and make projections based on aggressive assumptions and conservative ideas equally. Make recovery plans accordingly in order to back your research and prepare yourself for the worst. You may segregate your product into premium and regular product keeping a low price point for regular and a higher one for your premium product, when making an aggressive projection, or simply keep a low price point with a conservative projection. Similarly reduce the sales force to zero or minimum to a maximum sales force and calculate the projections accordingly. These varying projections will present to you a two sided view of your business growth and allow you to plan better.
Don’t be Over Enthusiastic:
It only takes experience to distinguish fluff and hype from reality. Don’t make unreal projections based on your dreams and vision alone and be mindful of your product, the target market as well as the potential of your human resource and advertising. All of these factors combined play a really important role in your revenue generation and ignoring or over expecting from any of these factors can lead you to either being considered a fool or an unreal enthusiasts with zero business research. In either case you either lose your investor, or end up clueless when reality hits you hard.
If you want any more advise on refining your business performance, you might want to read this article.