Sales Forecasting Method – Name Search for New Business

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Dear M & M:

How do I determine the best sales forecasting method?

– Ethan

Dear Ethan:

Properly forecasting sales helps you plan and prepare for the months and years ahead, allowing you to control costs and focus on successful growth strategies. A good sales forecasting methodology also helps your business run more efficiently. The most practical method for forecasting sales is to base your projections on historical sales results and your past experience. The right sales forecast method for your business is the one that is closest to your actual sales results within a reasonable margin of error.

Step 1: Gather your company’s past income statements. Go back several years. Sales data from your income statements over the last five to 10 years has more predictive power than just using last year’s sales to forecast this year’s sales.

Step 2: Calculate the sales growth rate from year to year. Divide the current sales by the prior year’s sales. For example, if your sales this year were $487,000 and last year’s sales were $412,000, the sales growth rate is 18 percent ($487,000 divided by $412,000). Repeat the process for all other years in the series of sales data. You should have five years’ worth of sales growth rates if you go back five years.

Step 3: Compare the sales growth rates year to year. Plot the sales growth rates using a spreadsheet for visual representation. Ideally, your sales growth rate should increase over time.

Step 4: Analyze various factors that impact sales to gain a better understanding of why sales grew or slowed from year to year. Determine the cause and effect relationship of variables, such as customer demand, worker productivity, advertising and promotion. For example, hiring an additional salesperson has an impact on sales. Demographic trends, such as an influx of consumers with high household income, can also have an effect on sales. Greater advertising and promotion affects sales, as well.

Step 5: Identify external factors that affect sales. External factors include the general economic environment or macroeconomic trends, such as unemployment, interest rates, consumer sentiment and inflation. Other macroeconomic trends include the level of competition. A greater number of competitors can potentially depress your company’s sales, which you must forecast into your sales projections.

Step 6: Make adjustments to account for seasonality of sales. Look at extenuating circumstances specific to your business. If you run an ice cream parlor, summer sales usually outweigh winter sales. If you run an office supply store, increase your sales projections to account for “back to school” promotion. Tweak your sales growth projections around your personal experience in running your business. Step 7: Apply a growth rate for sales based on your sales model. Compare your sales forecast with actual sales results. If your projections were off, go back and look at your various assumptions. Your goal is to forecast sales within a reasonable margin of error. Analyze sales on a regular basis and make adjustments accordingly. You project an annual sales growth rate, but review your projections on a monthly basis to adjust your numbers and get a more accurate determination of sales for upcoming months.

 -M&M

 

Dear M & M:

How can I find out if someone else is using the same name I want to use for my new business?

– Jack

Dear Jack: 

The Arizona Corporation Commission has a web site you can log in to verify business names in Arizona that have reserved or registered their trade name. This is the URL or link to that site: http://starpas.azcc.gov/scripts/cgiip.exe/WService=wsbroker1/eforms.p?form-number=CF0059 . From their web site you can electronically file your name reservation for $45. This has the advantage of immediately reserving your name so no other business can take it. However, if you do not need to expedite your name filing, you can also reserve your name by filling out the application for reservation of a corporate name (which can be pulled down from the same web site) for $10 and mail it to either the Phoenix or Tucson office or you can go to either office and file the form in person. The address for the Phoenix office is: Arizona Corporation Commission, Corporations Division, 1300 W. Washington, Phoenix, AZ 85002 and for Tucson the address is: 400 W. Congress #221 Tucson AZ 85701. If you don’t want to travel to Tucson or Phoenix or if you are having difficulty pulling down the forms the Small Business Development Center at Cochise College in Sierra Vista can help you. Please call them to schedule an appointment to see one of their counselors: 520-515-5478.

 -M&M

 

To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation(EDF) at 520-458-6948 or email  hollism@svedf.org .

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