Whatever your short-term and/or long-term goals, every startup business needs to know how to forecast revenue for a new business. Financial forecasting will help you have a clearer picture of the steps you should take today to help your business achieve its goals. At the same time, if you ever need more funding, your financial forecasts will be essential in demonstrating your business is on the right track for growth and success.
However, if you’re like most small businesses or startup businesses, understanding how to forecast revenue for a new business isn’t your forte. Because of the mounting number of tasks vying for your attention, finding time to learn how to forecast revenue for your new business and finding time to execute those steps may be too much.
Fortunately, you’re not alone. The experts at John F. Dennehy CPA offer decades of experience helping startup businesses and new businesses effectively forecast revenues. Contact us today for assistance forecasting revenue for your business. In the meantime, continue reading to learn more about how to forecast revenue for a new business.
Financial Forecasting: What Is It?
As the name suggests, a financial forecast attempts to predict what your business will look like in the future. Then, you can use a pro forma statement to solidify and document your predictions. Pro forma statements are financial projection documents based on predictions of the future. The three key pro forma statements you should know include:
What’s the Difference between Financial Forecasting and Budgeting?
Creating a budget means developing a plan to reserve monies for specific purposes, taking into account your expenses and income. The budget you develop should be based on information from your financial forecast, but it’s very different from the actual forecast.
Financial forecasting is a lot like predicting; while budgeting is more like planning. Whenever you create a financial forecast, you determine which direction your business is moving based on previous performance and other factors. Then, you use these factors to try to anticipate the future. In contrast, whenever you make a budget, you’re simply planning how you’ll spend money based on your expectations of future cash flows (the forecast).
How to Forecast Revenue for a New Business? Simple Steps
Ready to look into the future of your business? Forecasting revenue is one way to truly look at the future solvency of your business and your overall growth potential. Here are a few key tips and steps you can use to learn how to forecast revenue for your new business.
Estimate Sales
The first step is to estimate the total number of maximum sales your business could expect. For instance, if you’re a manufacturer, you can project revenues based on the products you can create. If you have a lawn care company, you can estimate the number of yards you can cut. Regardless of your industry or business, forecasting revenue starts with estimating sales.
Estimate Local Demand
The next step is to estimate the local demand for your services and then re-evaluate your estimate. You can gather market data by contacting potential customers and clients. This should provide insight into the amount of demand existing for your service or product. Then you can adjust your sales estimates. However, if the demand is more than your capacity, you will not need to make the change.
Estimate Price for Your Service or Product
In your survey, make sure to question the highest price your customers are willing to pay for the service or product you provide. You should also pay special attention to what your competition is charging. When setting the price of your service or product, make sure to try to achieve a price point that is competitive and acceptable to your customers.
Projecting Revenues
Now, you should multiply your expected sales by the price of your service or product. If you have more than one product, you can perform this function for every product or service and add up the total. This will provide you with a rough estimate of your projected revenues.
Cost of Producing Goods
In this step, you should estimate the cost of purchasing the products you’re expecting to sell or the cost of producing the products you’re looking to sell. You can reach out to your suppliers for estimates on products or materials you’ll need.
How to Forecast Revenue for a New Business
Finally, you can calculate your expected revenues for the first year by subtracting your estimated expenses from the projected revenue.
Work with an Experienced Accountant to Forecast Revenue
Undoubtedly, the challenge for any startup entrepreneur is creating revenue forecasts. Because you don’t have historical data to work with and very little market research, many savvy business owners turn to the experienced team at John F. Dennehy CPA.
Instead of going at it alone, our team of accountants will know the types of profits, sales, and expenses a well-run business in your industry can expect. We’ll use this in depth understanding to help you come up with real revenue forecasts for your start-up business.
Contact John F. Dennehy CPA
The future of your business will depend greatly on your ability to make financial projections! However, you don’t have to go at it alone. You have an entire team of support at John F. Dennehy CPA to help you navigate your way toward success.
Contact John F. Dennehy CPA today.