Brad CallaughanTuesday, 12 July 2011 16:44
How do you put together a growth forecast?
If only we had a crystal ball to see into the future, things would be much easier, however we don’t and estimating future growth is one of the hardest exercises for a new business owner to grasp.
These forecasts are rarely accurate, but they do get us thinking about our business and the logic and diligence that we will put into our assumptions.
These forecasts are a great model for running “what-if” scenarios and this is why a lot of new businesses are required to provide one of these with their business plan when approaching a bank for finance, so let’s have a look at the essentials they will require and how to prepare something looking three years into the future.
Generally we prepare these forecasts in a simple excel spreadsheet that will act as a timeline.
This timeline should be set out monthly for the next 36 months (three years). Here are some simple steps to follow: -
An example of this depending on what business you are in would be to estimate the number of clients/customers that would visit your website/shop.
This can only be based a certain rate of traffic. (You could look to certain benchmarking companies that maybe able to provide a more accurate figure.)
We would then need to look at a conversion rate of this traffic to new customers. Say 2,000 people look at your website (or advertisement/marketing material) weekly and that 42% of them will purchase from you within the next month.
Your average price of product is $10, therefore you growth for the month will be $8,400. Now of course you should minus your expenses in relation to gaining this growth but this is more a cash flow issue. This is also known as organic growth. As always, have a chat with a professional to work out your own specific needs.
Brad Callaughan, of Callaughan Partners, has more than nine years’ professional accountancy experience. He has worked in senior management roles within taxation and business services dealing with a number of clients from a range of business sectors.
Ask Brad or any other StartupSmart Mentor a question here.
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