Tools for Predicting Your Company’s Growth

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Tools for Predicting Your Company's Growth
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Negosentro.com | Tools for Predicting Your Company’s Growth | One of the most difficult yet important aspects of starting a new business is predicting how it will grow. Unfortunately, there is no crystal ball to gaze into for the answer, so you’ll have to invest some time and effort in analysis and projection. Doing so is important because having a thoroughly vetted financial forecast will help guide your planning as well as convince potential investors that your business is on solid ground.

Forecast the Sales

It’s important to be as accurate as possible when predicting how much and when your company will earn money. Understanding this key information helps determine the overall business plan in terms of when to order supplies, hire new employees, and invest in marketing. Having an accurate sales forecast is vital to knowing and growing your business. The consequences of not having this important tool can cascade through your business, from a cash flow crisis that leads to an inability to purchase supplies which in turn delays delivery to a customer who then sues for breach of contract. That’s the kind of nightmare scenario that keeps business owners up at night. Using the right sales forecasting tool will minimize your risks and maximize your insights.

Of course, the world is not static. Even after you’ve invested in robust sales forecasting, unforeseen circumstances like the global COVID-19 pandemic can throw all your careful projections into a tailspin. That makes it even more important to have a reliable and systematic method that quickly adjusts the forecast as new data arises.

Tally the Expenses

The money coming in is only one side of the coin; you also need to understand how much is going out. Getting a good understanding of your business expenses takes some effort but will pay off in the long run. In the beginning, you’ll be working with estimates. But with each passing month, you’ll get a clearer picture of what the true costs are. Be sure to keep careful records of all expenses associated with your business; even the smallest can impact your projections and profitability.

There are two basic categories of expenses, fixed and variable. Fixed expenses are those that don’t change no matter how much your business earns. These costs include rent, utilities, and insurance, among others. Variable expenses go up and down, depending on the company’s sales and other activities. Some variable costs are materials, shipping, and commissions.

Calculate the Profit

It is possible for large amounts of money to flow in and out of your business each month with no actual profit. The only way to know if your company is healthy and growing is to calculate its gross and net profit. Once you have a reliable sales forecast and a detailed projection for expenses, you can determine these key indicators easily. To begin, calculate your company’s gross profit by subtracting variable costs from projected revenue. From there, subtract fixed costs from gross profit. The result is your net profit, which is the most important number because it lets you know whether your company is actually making any money.

With profit, your company can expand by hiring new employees, moving into a bigger facility, or bidding on bigger contracts. Keep in mind, though, that any changes in your operating budget will have an effect on your bottom line.

Evaluate the Margins

Another key indicator when forecasting your company’s growth is the profit margin. This data point indicates what percentage of a product’s selling price returns to the company as profit. For example, a profit margin of 40% indicates that the business earns a net income of forty cents for every dollar in sales. The profit margin is useful in forecasting not only how much revenue can be expected based on the number of sales but also whether a company needs to find ways to lower costs or increase prices.

Predicting your company’s growth is a delicate balance of art and science. In the beginning, you’ll probably rely largely on intuition and best guesses. As time goes on and you have solid data to guide decisions, your expertise will grow, allowing you to become a more confident and successful business owner.

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