If someone plays a song that was very popular 100 years ago, do you think that you will like the song now? Obviously not, but why don’t you like the song now? Why do people love the song Some Hundred Years Ago? The reason is the change in taste of the people. So you have to keep in your mind the taste of the people. Many times it happened that if a film became a super hit, or a song became a hit song, or a TV serial got very popular, then people started using costumes, dresses, words, other stuff, etc. in their daily lives. However, it is quite hard to predict what will be popular in a few years. Soon it will be your task to look into the future and decide what will be the trend in the future, which can impact your business. So you need to do something so that you can discover the future trends in your business, which are yet to come. You can stay in touch with business owners in similar businesses, attend trade shows, talk to your customers, and read issues related to your fields or any other thing you think you need to do. In short, you need to find the trend that will continue in the next decade. You need to find out which type of businesses will grow in the future and which businesses are going to lose their existence. It will give you the idea of what are the things you need to offer to your customer so that you can serve your customer as they wish as per the latest tastes and trends.You can provide your customers the products and services thatthey are looking for as per the latest tests and trends.
Last but not least, technology is the game changer these days. If you know about software, AI, and robotics, then it can change the course of your business. Even if any company is investing a lot of money and time to bring a new technology, then you need to think about how you can benefit from that. For example, audiobooks, podcasts, OTT, YouTube, mobile apps, etc. You can use these things to acquire customers and grow your business, and you can help other businesses to do the same and earn from other businesses.
Now write down the trends that you think right now will affect your business in the coming years, and it will be very helpful for you in the coming days. This is known as future trends statement. For example, I know that in the coming days all banks in India will go digital, and even the NBFCs in India will go digital, so it will open a new scope for my business.
Break-even analysis
What experience do they have in business? Do they use break-even analysis even before writing the business plan as their primary screening tool for a new business venture. They don’t start writing the complete business plan until their break-even forecaste shows that the sales revenue they expect to obtain far exceeds what they need to cover all expenses of the business. They know very well that if it does not happen, then their business will not survive. It will be a waste of time, money, and energy for them. So if you are in a hurry to start the business, then please check this tendency in yourself, and please focus on the financial forecast carefully and confirm that your idea will be a sure winner. Now, how can you tell that your idea will be profitable before implementing it? The honest answer is you cannot do so. The only thing that you can do is to follow educated guesses, and this is the most challenging part of your business plan. This is the fact that makes the business exciting and adventurous, and the best idea to do so is break-even analysis.
In order to complete a break even forecast of your business, you have to make four separate estimates:
1.Sales Revenue
2.fix cost (Overhead)
3.Gross profit for each sale
4.Break even sales revenue
Sales revenue: The total amount your business brings in each week, month, or year is sales revenue. Please remember that sales is the most important thing in your business, which matters no matter what people think or say. Since it is the only thing that matters in your business, especially during the initial days of your business. People’s opinions and thinking or advice will not make any impact on sales of your business.
Fixed costs or overhead: No matter if you do well or not, you have to pay these expenses every month or every year, and these expenses do not vary much. These include rent, insurance, and other set expenses.
Gross profit for each sale: this is defined as how much money is left from each sale after paying the direct cost of that product.
Break-even sales revenue: This will be the amount you need to cover direct product costs and fixed costs every week or every month; it does not include any profit.
Forecast Sales Revenue
In this forecast, your work is to estimate your probable self-revenue month-on-month for the next 2 years. Actually, it depends upon your business type as to how much time you need to estimate the forecast. But to start your business, you need to know this figure for at least the next 2 years. You need to keep this figure realistic and analytical. To remove all the pressure on yourself, you must keep in your mind the break-even. Don’t try to make your business very profitable; just try to make it break even. After this, you need to implement some changes to make it profitable. Please remember just to break even.
Retail sales revenue forecast: The easiest way to measure the sales revenue forecast for retail is to find the annual sales revenue per square foot of a comparable store, then multiply that figure by your estimate of floor space to derive an estimate of your annual sales revenue. Some of the big retailers, like supermarkets Big Bazaar, Walmart, and V Mart, have turned this art of estimating sales into a science. They have good experience, which is helpful for them, and occasionally they may make a bad estimate, but almost every time they do this thing correctly. together with statistics, data, competition, demographics, etc., and on this basis they decide and estimate sales volume for a new store.
In the case of online retail, cost per acquisition, average order value, and lifetime value of customer are the most important data. Once you find out this data, then you can estimate retail sales revenue for online stores.
Service business sales forecast: For a service business, you need to understand what steps you go through to generate a transaction or a sale, then make a forecast of how many times you expect to go through all those steps every month or every year and how much revenue you will get from that. also include matters that are not financial, but you have to do those things to make a transaction or a sale.
Manufacturing or wholesale business sales forecast: if you are planning to be a manufacturer, then you will manufacture and sell your product to wholesalers, and if you are a wholesaler, then you will purchase the product from the manufacturer and sell it to retailers, so in both cases, the sales revenue forecast can be determined by a combination of retail and service sales revenue forecasts. Ultimately your product will be sold to retailers and they sell to consumers, so you will use the component in the retail sales forecast, and it will take some time to generate a sale. Hence, you will use the service sales revenue forecast concept. If you are facing difficulty in developing an estimate, then probably you need to learn more about your business. But don’t worry; your journey will teach you all these things with time. Right now, you are probably on Steve zero OR step one. When you reach step ten, you will understand all these things, and from that time, you will not face this type of problem. Have patience and learn more about your business.
Project development sales revenue forecast: They will get revenue only when the project is sold, so they do not need a monthly sales revenue forecast, and they know the amount for which they can sell their project before they begin.
Fix Cost Forecast
The difference between success and failure of any business depends upon the cost of the business. In other words, in any business you have to keep the cost low so that business can be profitable, so you have to be frugal in your business. Many smart people start their business from their home or from some garage or a low-rent space, shared office, etc., and if you invest all your money in the fancy things that you see on TV or social media, then all your money will go into those fancy and luxurious things, and your business will go broke because you will not have money to operate your business or to grow your business.
Now you shall make a list of fixed or regular monthly or annual expenses of your business, and the objective behind this is to know the amount of expense you are committed to pay every month. It will include utilities, software subscriptions, the salaries of employees, payroll, taxes, insurance payments, bookkeeping, accounting, etc. Some costs will be monthly, and some costs will be in case of annual; you can divide that cost by 12 and so on a monthly basis in your fixed cost forecast. It also includes some discretionary costs that change from time to time due to your decision, for example, promotion expenses, advertising expenses, etc.
Forecast Gross Profit for each sales
If you subtract the cost of goods sold from the price at which you sold the good, then whatever is left is your gross profit on each sale. It will pay your fixed cost and determine the profitability of your business. At this stage you are trying to make a rough estimate of your average gross profit, and you are trying to confirm that at least your business will reach that much profit so that your business can cover fixed costs and and you will not face any kind of loss during the beginning years of the business. Later on, you will try to make your business more profitable. The calculation for every type of business is similar. Some businesses will have high margins, or some businesses will have less margin; that is the only difference, but the calculation is similar except for project developers because they have no fixed cost. This is because a developer’s business ends with the sale of the project.However, if a developer works on multiple projects at the same time, then he may have some fixed costs that continue after any particular project is solved for project development. Gross profit is the difference between selling price and project cost.
Forecast Gross Profi t for a Start-Up Business
For a new business, calculate the average gross profi t for your business by following these steps:
1. For each product or service that you sell, list every individual item that goes into that product, including piece-rate labor and commissions.
2. Once you have a complete list of all the cost components for your products or services, add up the cost of each item.
3. Write the selling price of the item below the total cost of the item.
4. Subtract the total cost from the selling price to derive the gross profit from each sale of that item.
5. Divide the selling price into the gross profit to derive the gross profit percentage for each product.
6. Repeat for each product you’ll sell; if you have more than four or five individual products, then it’s better to group them by gross profit percentage rather than to make an estimate for each individual product. 7. Write down how much total dollar sales you expect for each product or product group.
8. Multiply the gross profit percentage by the total dollar sales to derive the dollar gross profit from each product.
9. Add together the total dollar gross profit figures to derive the total dollar gross profit from the year’s sales.
10. Divide the dollar gross profit by the annual sales revenue to derive the average gross profit percentage for the year’s sales. Completing this gives you an average gross profit percentage for your business.
Forecast Gross Profit for an Existing Business
If you’re already operating and have a profit and loss statement for your business from prior months, your job is even easier. Simply subtract the total cost of sales from the total revenue to get the gross profit for the period. Then, convert the gross profit figures to a percentage of sales revenue by dividing total gross profit by total sales for the period. The percentage gross profit figure you get will be the percentage gross profit figure you use for your break-even forecast. If you’re already operating and your expansion will change the percentage of total sales revenue that each product group brings, then you will need to forecast your new average gross profit by following the procedure for a new business listed just above
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