So far your business plan has told the recipient what you are selling, who you are selling it to and how you intend to generate these sales. Now it is time to put all of your assumptions together in the form of your sales forecast. This represents the most important set of figures to come out of your business plan to date. These figures will be used to compile your cashflow, profit and loss and balance sheet forecasts. In addition they will be used to calculate how much capital you will need to get started, how much profit you expect to make and ultimately the viability of your business venture.
Projecting Your Sales
When you compile your expected sales projections, make sure the figures you present really are achievable, believable and most of all realistic. If your business is in the fortunate position of already having advance orders then you may already have a good idea of what your sales will be. However, if you are launching a new venture then your assumptions will be based on the information you have gathered from your market research studies. It is inevitable that the enthusiasm you have for your venture will lead you to be a little optimistic with your projections but try to keep yourself focused on a believable and prudent forecast.
Making Up A Sales Forecast
Whatever sales projections you make you must be able to support your assumptions with evidence clearly showing how these figures will be reached. There are various methods you can use to support your sales projections including:
- gathering sales information on similar businesses
- communicating with the founders of similar indirect competitors
Fig. 3.
A profit and loss forecast.
- discovering how much revenue your target market generates and what market share you hope to achieve
- analysing previous sales records, if the business is already established
- listing any firm orders that you have already received.
Compiling Your Profit And Loss Forecast
Your profit and loss forecast will show your potential investors or backers just how viable your venture is in terms of its profitability. You will find it very difficult to get any kind of capital investment unless you can show that at some point your sales will exceed the costs incurred for obtaining that sales revenue, and that your business is trading at a profit. A typical profit and loss forecast will be budgeted on a monthly basis for the first twelve months, and then quarterly for the following two years assuming you feel confident enough to predict that far.
Most of the banks and financial institutions will be able to provide their own standard profit and loss forecast forms similar to the one shown in
Figure 3, reproduced by kind permission of Barclays Bank plc. In order to compile a full twelve month forecast, simply carry forward the subtotals column to complete the remaining six months. The nature of your business will determine which of these headings will apply, so just leave blank any columns that are not applicable. It is worth remembering that the figures you enter into your profit and loss forecast will be exclusive of any VAT.
Budgeted Sales
Your sales forecast will have shown how much sales revenue you expect your business to generate. You can now begin putting these figures into the ‘budget’ column of your profit and loss forecast.
Budgeted Direct Costs
To calculate your direct (variable) costs simply add together the cost of the materials you have used, with the cost of the labour you have engaged to either make, buy or offer sufficient goods or services to meet your monthly sales figure.
Budgeted Gross Profit
You can calculate your gross profit by deducting the total of your direct costs from your sales figures.
Gross Profit Margin (%)
Dividing your gross profit by your total sales and then multiplying this figure by 100 will give you your percentage gross profit margin. For example:
