When you’re running a business, you should always keep one eye on the future. If you don’t have a rough idea of what the next week, month, or year might bring, you’ll be at a disadvantage when making business decisions. This means that calculating a sales forecast is essential, especially when you’re just starting a business or beginning to write a business plan

Sales forecasting can be tough if you don’t have much business experience, but we’re here to help. This article will cover a range of different topics related to sales forecasting, including:

  • Definition of a sales forecast
  • The uses of a sales forecast
  • How to calculate sales forecast for a new business

Definition of a sales forecast

Creating a sales forecast is the first step in managing your company’s cash flow. Your cash flow is the movement of money in and out of your business. By forecasting your sales, you’ll be able to predict your gross profit and net profit, which means you can start anticipating what money you’ll have to spend on running your business for the next month. 

Put simply, a sales forecast is a prediction of how much you’re going to sell in the coming month. This forecast doesn’t need to be a guess — it’s possible to calculate a fairly accurate forecast with some thorough research. The focus of your research will differ depending on which sales forecast method you pick.

The uses of a sales forecast

Firstly, your sales forecast is important because it helps you set sales goals. Measuring the success of your business is a vital part of deciding its future, and setting sales goals is one of the simplest ways to measure success. 

If you have an accurate sales forecast, you’ll be able to set realistic sales goals. You’ll want your goals to be realistic, as this will give the clearest picture of how well your company is doing and if significant changes are needed.

Similarly, sales forecasts can also help create an accurate budget for your business. As a sales forecast is essential for predicting the money your business will make, it also plays an important part in working out how much money you’ll have to spend. 

Finally, sales forecasts help with finding investors for your business. If you’re looking for financial support to start your business, any investor you approach will likely be interested in the amount of money you expect the business to make. If you’ve created a sales forecast, you’ll be able to provide this information.

How to calculate sales forecast for a new business

Large, well-established businesses rely on the sales figures of previous months to calculate their sales forecasts for the future. While having previous sales figures helps create more accurate forecasts, it’s not essential. There are a couple of methods new businesses can use to calculate their sales forecasts, even if they don’t have a sales history to look back at.

Calculate a sales forecast using the accounts of your competition 

It’s always a good idea to research the competition when you’re setting up a new business. This is also true when calculating a sales forecast, but it depends on the type of businesses that make up your competition.

If any of your competitors are registered with the government as limited companies, they will have to make their accounts publicly available. These accounts will contain things like their monthly expenses, total profits, and (most importantly) the money they’ve made from sales. 

Using this last figure, you can work out how much your competitors are making from sales each month, and get a reasonable estimate of your own sales. You can find these accounts by searching for your competitor’s business on Companies House.

Please note that this method isn’t effective if your competitors are sole traders, as this means they won’t need to publish their accounts publicly. In this instance, you should use the forecasting method below. 

Calculate a sales forecast using a target market

This method is known as ‘bottom-up’ forecasting, as you start at the bottom — your potential market of customers — and then work up to a forecast — the percentage of those customers that make a purchase.

The first step of this method is identifying your target market. This is the section of the population that you think will be interested in your product. With a little market research — things like sending out surveys, or posting polls on social media — you can work out how many people are in your target market. 

Once you have the size of your target market, you need to make realistic estimates of how many people will make a purchase. For example, if 1000 people in the local area are potential customers, you should expect 10% to visit your store or website, and 1% to actually make a purchase.

This method of calculating a sales forecast is good because it’s very adaptable. If you get many more or far fewer sales than you originally calculated, then you can adjust your figures accordingly and record the new forecast. 

It’s also a good idea to categorise this sort of sales forecast. Instead of estimating your overall sales, estimate the sales of each type of product you sell. That way, you can use the forecast to work out how many of each product to make or order each month. 

Manage your finances with Countingup

Creating a sales forecast is a great start, but it’s only the first part of managing your sales revenue. Once you start making sales and money starts coming in, you’ll need to track that cash so you can work out where to spend it. If you think you might have trouble with this, try using a financial software tool like Countingup.

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 
Find out more here.