Everybody’s business: Revenue forecast critical to business plan

By Sandra Taylor-Sawyer, Ed.D.

One of the most critical components of any business plan is a well-executed “revenue forecast.” The art of projecting sales and revenue is often a difficult one because it involves trying to peer into the future in an analytical fashion to estimate what is going to happen.

The accuracy of a revenue forecast hinges largely on the accuracy of the assumptions that support it.

The first step is to make sure that what is assumed is as logical and realistic as possible. The more facts the business owner knows with fewer assumptions, the better the forecast. Forecasts can be based on historical data, expert opinion and personal experiences.

Good forecasting techniques go beyond the automatic projection of past occurrences. Good common sense must be applied and the effects of outside factors considered.

Once identified, the market or the segment of the market to be targeted must be researched and analyzed as thoroughly as possible. The size of the market must be determined. The owner must ask: “Who is my customer? Where does the customer reside? How much money will the customer spend? What will direct consumers to buy my products or services?”