ESTIMATING SALES AND REVENUE
As sales of products and services are the lifeblood of most companies, you will inevitably start with a projection of sales and revenue. This can be a tricky process because it involves guessing the future, but there are certain actions you can take to make a forecast easier.
- USE PAST SALES
- DISTINGUISH BETWEEN PRODUCTS
- LOOK AT THE COMPETITION
- ASK SUPPLIERS
- READ SECTOR REPORTS
- STUDY INNOVATIVE PRODUCTS
- MONITOR CASH FLOW
ESTIMATING EXPENDITURE
The next part of your budget should include all the costs of operation involved in producing and delivering the product or service to customers. These are factors that need to be considered:
- DEFINE EXPENDITURE TYPES: 4 main types:-
SPECIFIC PRODUCT COSTS
ONGOING COSTS
START-UP COSTS
- DEFINE EXPENDITURE TIMING
- ESTIMATE PROFITS/LOSS
CHALLENGING THE FIGURES
At this stage, you may feel confident about stating some figures (more typically expenditure because these are easier to predict) and more nervous about sales and profit figures, mainly because these are subject to
- a number of variables such as the action of competitors or
- changes in the economy that you have not foreseen.
The following approaches may be helpful in allowing you to challenge the figures that you have initially compiled.
- "WHAT-IF" SCENARIOS: by working on the assumption that the final result is not as favourable to the company as you had hoped. To avoid becoming too negative, you could include two sets of figures, underlying which you place your initial set of projected figures.
- ZERO-BASED BUDGETING: the process whereby a company decides what target it wants to achieve, how this can be achieved, and what resources it needs to implement the result; also known as bottom-down budgeting.
- ACTIVITY-BASED COSTING: costing by activities that define any actions that a company takes regularly as part of its day-to-day operations.
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