Your business revenue forecast is an essential part of future business planning. You need to know approximately how much you can make throughout the year, your expected cash flow and how much growth your business may experience. Revenue forecasting is not intended to give you exact figures for yearly earnings. Instead, it does provide several methods that will help you forecast your revenue as accurately as possible. Here are three things to keep in mind to assist you in forecasting your company's revenue.
1. Research thoroughly
It takes a significant amount of data to forecast revenue. In addition to your standard expenses and recurring payments, look at data from competitors in similar growth stages as your business, predicted seasonal trends and other increased revenue periods. Pull data from your analytics and financial reports, industry case studies and reports, and other data sources for a compilation.
2. Provide a thorough breakdown of expenses
Obtain a full accounting of your yearly expenses. After all, figuring out your revenue is trickier than anticipating your fixed costs. Look beyond your regular costs and estimate the amount of occasional expense costs. Estimate irregular costs on the high side. It's better to plan for higher costs and be pleasantly surprised if you have a budget surplus.
3. Review your company's cash flow history
You can't predict sudden growth phases, but you can estimate your future revenue based on your company's performance during the last few years. If you are planning big changes, such as a new product line or a major company announcement, look at revenue trends from similar events in the past to guide you for the direction your business may be headed.
Entrepreneur recommends taking a look at revenue forecasting with two specific mindsets: the optimistic approach and a more conservative estimate. You always want to hope for a high level of success for your company, so the optimistic estimation looks at a best-case scenario for your business. The conservative revenue forecast takes a more measured approach to determine how much your company will bring in during the coming year.
