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The Definitive Guide to Sales Forecasting (+ Free Templates)

The Definitive Guide to Sales Forecasting (+ Free Templates)

Sales forecasting can seem like an impenetrable black box to entrepreneurs and small business owners, but it doesn’t have to be that way! The best way to demystify sales forecasting is to break down the process into steps, which this sales forecasting guide will do in exquisite detail. In addition, you’ll also find sales forecast templates at the end of the guide, so you can see how other entrepreneurs structured their forecasts and learn from their successes and mistakes!

Introduction to forecasting

Forecasting is one of the most important aspects of sales and is the basis for all other analytics and metrics that you will use in your business. So what is a forecast, exactly? A forecast is a prediction about the future based on past events. It’s an educated guess about how your team or project will do over a set period. Your forecast relies on different variables, but it ultimately comes down to some expert judgment about what might happen based on previous performance. It’s hard work, but well worth it! After all, building forecasts help establish meaningful patterns of behavior in your business and allow you to anticipate change before it happens. To make sure that your forecasts are accurate (and we’re not here just to guess), we recommend using tools like Excel or Tableau!

Revenue forecasting vs. cost forecasting

Revenue forecasting is how we predict the volume of business that we expect. This can be tricky, but it’s a lot simpler if we break down the numbers for future quarters into growth percentages. To make your predictions as accurate as possible, it’s important that you have a basic understanding of your industry and what other companies in your industry are doing. Revenue forecasting is mainly an estimate of the top line (what you’ll charge), but it doesn’t take into account all costs associated with production or providing services (sometimes called ‘gross margins’). It also doesn’t look at fixed costs like rent and utilities or taxes and liabilities, which you might need money to pay off before making any profit.

What’s in this guide?

-Forecasts: Why You Need Them and How to Use Them

-What Makes a Good Forecast? Questions for Potential Marketers and Startup CEOs

-Software: Setting up your Numbers with Slack, Microsoft Excel, or Google Spreadsheets

-When is the Right Time for Sales Forecasting?

-Sales Force Management Software Examples –Market Research Tools to Collect Data

-Excel Template Download: The Proposal Outline Template

-Excel Template Download: The Proposal Tracking Sheet

-Google Sheets Template Download: The Proposal Outline Template

-Google Sheets Template Download: The Proposal Tracking Sheet

Step 1 – Find your top 3 recurring revenue sources

Start by listing the top three sources of revenue. These are the ones that will give you the most money over time if you plan your sales correctly. Allocate enough time and resources to these areas and choose a target for each one for the upcoming year. If needed, create goals for yourself in order to know when you have met or exceeded them. Remember, this isn’t necessarily easy so don’t expect too much right away. Just try your best and keep moving forward!

Take a look at how much profit each source of revenue is bringing in on average per month and create a goal that gets you closer to that number or even exceeds it.

Step 2 – find your growth rates

Your growth rates are the key variable in projecting sales. For example, you may be growing at 30% each year for five years, which means your revenue will be 15x higher in 5 years. The variable your growth rate is based on varies from industry to industry and business to business. To find your growth rate, you’ll need to do some research into your industry and customer preferences as well as analyze how fast other businesses in the same space are growing. Keep in mind that a high growth rate could indicate risk (depending on the market) so be sure you’re comfortable with that before executing a plan relying on this factor.

Step 3 – forecast your sales, expenses, and cash flow

Use these templates and the worksheet to determine your forecast. Once you’ve finished filling in the numbers, your total amount of sales will be calculated at the bottom of page 2. Subtract this number from your expected cash outflow on page 3, then subtract that number from your available cash or financing on page 3. The result is how much funding you’ll need in order to start a business. If it’s negative, congratulations! You can do your startup for free!

If it’s positive but not enough to cover all your expenses, you might want to ask a family member or angel investor for a loan. Remember – borrowing money isn’t always bad. In fact, if done right (with collateral), it can be an extremely effective way to grow wealth over time without sacrificing too much liquidity.

If it’s positive but not enough to cover all your expenses plus the loan: Unfortunately, you’ll need more funding than just what’s available right now.

Postscript on Cash Flow Statements

There are many uses for cash flow statements. One use is figuring out whether you have enough cash to cover expenses and make future investments. This tool is key if you want to maintain a healthy balance sheet that can meet the needs of your creditors, employees, and investors, without compromising your company’s operations. It will also help predict what kind of dividends or shares each shareholder is entitled to. You’ll find it especially useful when analyzing whether there are enough funds on hand to pay off debt obligations (interest expense). You’ll be able to see if the money from investments has been allocated correctly by comparing your assets and liabilities at different points in time.

A third reason why cash flow statements are so important is that they’re used as a measure of success within publicly-traded companies, as well as for evaluating companies for investment opportunities on Wall Street.

Lastly, as mentioned previously, all these numbers can be found in three financial reports:
1) Income statement;
2) Balance Sheet;
3) Cash Flow Statement. The numbers in these reports should all be consistent with one another – it would seem like something isn’t adding up if there were large discrepancies between them!