In business, it is important to think forward into the future while making use of the past and present data. For you to have data in the first place, you need to keep and maintain important documentations of all business-related figures, such as cash flow statements, balance sheets and profit and loss statements. Updating and revisiting the figures in these documentations is important if you are to forecast future growth in your business and formulate a sound plan and strategy to achieve that predicted growth. It might not be as easy as it seems, as you need to consider several factors in your business that are related to the success of your business in one way or another.
Be Familiar with Revenue Projection
You don’t have to be an economics degree holder to know this concept. What it simply takes is making use of your business’s historical financial information, market data and sales information to anticipate future revenue and growth. If you are starting up a business, you’ll also have to factor in market research and expenses in your reference data. Your projection of future growth will also be useful in formulating a budget for the upcoming financial period.
Identify Your Expenses
Once you get a good grasp of the concept and importance of having a revenue projection, it’s time to focus on knowing current or baseline expense situation. Again, we stress the importance of proper and comprehensive documentation of every type of expenses: fixed expenses, variable expenses, revenue, gross margin and interest rates. The numbers of these recorded expenses should have a recognizable and predictable pattern. Otherwise, if there are drastic changes, you’ll have to reevaluate your predictions. Expense forecasting is an important type of prediction, especially if you are in the early stages of your business. There are recurring costs that you need to consider, such as utilities, rent, accounting costs, legal costs, supplies, staffing, advertising and marketing. As a rule of thumb, never make close or exact estimates of your actual expense numbers. Chances are you’ll fall short in your allocation for your projected expenses. Double or triple your estimates for important operational expenses such as advertising, marketing, insurance, legal costs and licensing costs.
Be Flexible with Future Scenarios
Once you have clearly established your baseline or current expense situation, you can start with the prediction of your business’s future growth. Always be flexible when it comes to predicting how many product units you’ll be selling in the next year and how much they would cost. Include multiple scenarios for future growth in order to cover every possible change that can affect the profit figures that you are projecting. Consider factors like staffing costs, marketing, advertising and price point. Factor in your history of growth rates from previous rates and make an estimate of the growth rate this year and the next using the current or baseline expenses mentioned.
Make Adjustments on Other Areas of Operation
Marketing and advertising will play a key role in how your current and projected sales will fare. As discussed earlier when it comes to cost estimates, these two factors need to be provided extra cost projections due to their importance in driving sales and profits. Social media is playing an important role in bridging businesses and their intended market audience closer. Marketing and advertising strategies can be linked with different social media platforms such as Facebook, Twitter and Instagram, and there can be additional costs associated with doing so. The latter offers top Instagram bots that can give comprehensive and analytical data on how your advertisement and marketing tie ups are faring on a daily monitored basis. Views, likes and followings are important data that can influence how your business follows up on its marketing and advertising strategies. While it’s good to invest more in effective marketing and advertising strategies by linking with social media platforms, services and features, it is also wise to err on the side of caution. Do not spend more for marketing and advertising if your potential for market expansion success is highly variable. It’s not wise to gamble on thinking about big sales projections. If you’re in doubt about the predictions, stay close to your business’s growth rate performance history.
Study Consumer Spending Trends
Your business’s consumers can offer valuable pieces of information you can’t ignore, especially when it comes to their spending. Consumer spending accounts for a large chunk of the US economy, which makes it a reliable indicator for making forecasts in your business’s growth. When consumer spending picks up, the demand chain in the economy accordingly picks up, as can be seen in correlations among consumer spending, corporate profits and marketplace activity. On the supply level, consumer spending is also directly correlated to the inventories in the retail, distributor and factory pipelines. These pipelines grow when consumer spending strengthens, and shrink when consumer spending slows down. In a similar manner, you can pattern when you can heighten your supply orders on the periods when consumers spend more, especially during the holiday seasons.
Forecasting your business’s growth can be quite complicated, but with the right inputs and guidance from reliable economic advisers, your forecast can be dependable in projecting the correct rate growth that you want to see in your business. Accuracy and careful study are key to making good projections, which can help your business gain the trust of investors and consumers, which will keep your business successful and expanding in the coming years. Follow the practical and sensible methods of growth forecasting for your business and also be open to technological innovations if you need to adopt business software that can generate forecasting models for you. With this in mind, you’re not just keeping your business afloat, but also sailing towards new areas of success and growth.