Sales forecasting, or the process of predicting future sales, is a process that every business should be familiar with, no matter its size. Having an accurate handle on your future sales will allow your small New Zealand-based enterprise to plan strategically, allocate resources in the most efficient manner, and make financial decisions that will count towards your growth.
If you have a fair idea of how much you’re likely to sell during a specific period, you’ll be able to set the most realistic business goals. The practice of sales forecasting can also help you align your business strategies with current and future market trends. If you can anticipate the challenges that will prevent you from selling as many of your goods as you possibly can, for example, then you can take proper steps to overcome these issues or come up with contingency plans for dealing with them.
Ultimately, the insights gained from accurate sales forecasting can empower your small businesses to navigate an increasingly competitive business landscape with greater confidence and agility. Here’s a guide for Kiwi businesses on how to go about it and how to maximise your gains upon learning about your sales prospects.
What Are the Common Methods Used in Sales Forecasting?
A small business can employ various methods for sales forecasting, and each comes with its own unique approach and advantages. If you’re an entrepreneur with a small finance team that needs extra support and expertise, the assistance of accountants Dunedin-based businesses trust can help you determine which method is best suited for your goals.
The key lies in selecting methods that actually align with your company’s industry, business goals, and available data. Only when you factor in these specific details will you end up with a comprehensive and adaptable approach to predicting your future sales.
One of the most common methods used in sales forecasting is historical sales data analysis. This method relies on the assumption that historical sales behaviour repeats itself. As such, looking back can help a business owner come up with a viable figure for the succeeding quarter or for the same period the following year.
Another approach is market research. This involves collecting and analysing data related to consumer preferences, industry trends, and competitor activities. Market research helps businesses like yours break down the external factors influencing sales and act upon them in a decisive way.
Then, there’s trend analysis, which is another method that focuses on identifying and extrapolating patterns from historical data. You, your finance team, and your accountant will make predictions about future sales performance based on long-term trends in your sector or for a particular product.
Finally, there are quantitative methods that involve mathematical models and statistical techniques to forecast sales. These methods include time series analysis and regression analysis, which all provide a more data-driven and analytical approach to forecasting.
How Can Your Small Business Carry Out Sales Forecasting?
After choosing the method or combination of methods that best matches the needs of your small business, you’ll want to do the following to effectively forecast your enterprise’s sales:
1) Set Realistic Goals
The foundational step for doing a sales forecast is deciding on a particular sales goal or set of sales goals to meet. You should carefully consider factors such as market conditions, who your competition is, and your company’s internal capabilities when establishing sales targets. Your goals should be challenging yet achievable, and they should provide motivation for the team while ensuring the business doesn’t overcommit.
2) Collect and Analyse Data
Next, you should invest time and effort in gathering comprehensive data on customer behaviour, market trends, and other external factors relevant to your sales goals. Having both historical sales data and current market intelligence at your disposal ensures that you’ll arrive at a well-rounded understanding of the environment your small business operates in.
You should also evaluate the data you’ve collected using appropriate tools or software, as these will make it much easier for you to identify patterns and make accurate calls rather than doing your forecast the manual way.
3) Use Technology to Your Advantage
As said above, technology can help a lot towards ensuring that your sales forecasting is on the mark. Learn about forecasting software and other tools that can do data analysis and trend identification. There are even sales forecasting solutions that can generate results based on a company’s historical performance.
Your small business may not have access to proprietary tools for advanced sales forecasting, as you may be on a limited budget or lack the technical know-how to operate such software. Luckily, you can enlist the guidance of an accounting firm and, through them, get access to top-of-the-line accounting and sales forecasting solutions as well as the expertise to generate clear and exhaustive forecasts.
4) Collaborate and Communicate with Your Team
Just like with any core business process, you’ll want to ensure effective collaboration and communication between your sales, marketing, and finance teams, as well as any outside contractors like a hired accountant, when you’re doing your sales forecast. With cross-functional teams working together, it will be much easier to keep everyone on the same page regarding your sales goals, market conditions, and any potential challenges that get in the way of your revenues.
This collaborative approach will definitely enhance the timeliness and accuracy of your sales forecasts. Plus, it promotes a unified effort towards achieving your company’s business objectives.
5) Review and Adjust Your Sales Forecast Regularly
Sales forecasting is not a one-time activity. Rather, it requires continuous review and adjustment. Make a habit, then, of regularly comparing your forecasted sales with your actual performance, and be ready to investigate any deviations.
Also conduct regular and ongoing evaluations to quickly adapt to changes in your business environment. Regular reviews will make you better at refining your forecasting methods and staying on top of emerging trends.
How will you know if you and your team have achieved an accurate forecast? One indicator is if your predicted sales end up aligning closely with your actual performance. Other green flags include meeting or exceeding your sales goals and achieving consistent revenue growth from month to month or quarter to quarter. With constant practice and assistance from an accounting expert, you’ll be able to stay on the mark.
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