Be it a small, medium or large business, strategic planning is key for business growth especially when the entire world gradually making its way through the pandemic. To accurately plan for the future and take the right steps every business needs, a sense of direction which comes from understanding the past and current business is important for business.
For example, how to decide the right time to launch your product or hire new resources to help build one? How to go about budgeting for marketing and promotions? In case of hardships, how can a business estimate the right business loan? The answers to all these questions start with Revenue Forecasting which can be a business’s guiding light for taking right decisions.
As a remote accounting firm that delivers outsourced bookkeeping and accounting services, we are well aware of how beneficial revenue forecasting can turn out for small and medium businesses. But how can a business leverage revenue forecasting for business growth? In this blog today we help you understand its importance. Read on:
What is revenue forecasting?
In simple terms, revenue forecasting is the process of estimating the revenue of the business over a specific period – be it a month, quarter or year. Here the revenue is the amount generated from the sales of goods and services.
This revenue forecast that is made based on the past performance and the current business state gives will help you know where you are headed with your current pace. And this will give you an insight into the steps that need to be taken to reach your growth goals.
Importance of revenue forecasting:
Unlike personal finances where you have a steady flow of income to plan your expenses, businesses are characterised by sporadic revenue streams which make it a tad difficult to budget the expenses. These difficulties are further complicated by new operating expenses like recruitment, marketing and promotions when you are aiming for business growth.
Revenue forecasting helps you estimate the incoming revenue to help you budget for all the operating expenses while also accounting for ad-hoc expenses to help you run your business smoothly.
However that is not about it, revenue forecasting comes with a stream of benefits especially for small and medium businesses who are looking to organize their finances and set up four business growth.
Some of the common and important benefits of revenue forecasting include:
1.Optimal cash flow and credit management:Effectively supervising the cash in-flow and out-flow is essential for revenue forecasting. Shedding light on this cash flow helps businesses ensure timely payables and receivables. This improved understanding of cash flow also helps you know when exactly a business needs credit too.
2.Budgeting: Revenue forecasting is key for efficient budgeting. Having the right revenue figures in hand help business stay on track with their spending habits. Setting appropriate budgets for business operations is simplified.
3.Helps in product analysis and scheduling:Forecasting the revenues also digs up the sources of revenue and analyses their share in your revenue to help you understand the sales and revenue potential of your product/service. This product analysis also gives a sneak peek into the production schedule to help plan the production task optimally.
4.Improves your customer relations:Diving deep into the past sales and revenue data is the easiest way to understand the customer buying patterns in relationship with the product/service at hand. This data usually helps estimate the spending patterns of the customer in the future which is of the tremendous value of planning decision making.
With revenue forecasting, a business owner gets to not only organize the business finances but also is equipped with the right insights to strategies for business growth. But how can a business accomplish revenue forecasting? Here is a three-step basic outline to accomplish revenue forecasting:
1.Research:Revenue forecasting requires a thorough dive into financial data- expenses, payments, seasonal trends and revenue periods. Data of similar businesses in similar growth stages must also be identified and analysed for making accurate estimations.
2.Accurate expense breakdown:Understand the expenses and pull all the expense data – regular, occasional and irregular costs associated with the operations. Having your bookkeeping and accounting done beforehand is the best way to simplify this step.
3.Complete review of cash flow history:The cash flow history of the business gives a rough estimate of business performance and future revenue and also helps identify the right revenue trends to make accurate estimations.
There are many tools and software that can help a business perform revenue forecasting, however, none tends to be accurate without the right accounting and bookkeeping expertise at hand. As an expert accounting firm with expertise in bookkeeping & accounting services, we have adeptly helped much small and medium businesses with our revenue forecasting services and we can help you too. You can contact us here: https://outsourcedbookeeping.com/