With a new year on the horizon, it’s time to lay the groundwork for next year’s operations. Although many business owners believe that budgeting is impossibly useless for small operations with widely fluctuating incomes, forecasting revenue reveals where you’re going in the coming year and helps estimate marketing targets.
Here’s a simple way to project next year’s revenue: On a spreadsheet, list in the first column your existing and prospective projects for January. A retail business with sales to the public will list normal minimum sales volume and extra customer volume. Consider allowing for possible higher weekend traffic by treating weekends separately.
In the next column, record the expected revenue for each line in the first column. Then add a percentage of probability for the projected revenue in the next column to the right. For example, you may have a 100% expectation of some work, but only a 50% chance of closing a new deal or attracting above-average traffic on weekends.
The last column to the right multiplies projected revenue by the probability percentages for each row. The sum of this column is your revenue forecast for January. Repeat the process for the subsequent eleven months, and add the twelve revenue forecasts together to determine expected revenue for next year.
This technique results in a meaningful scenario by turning hoped-for revenue into realistic results based on probability. So a 25% chance of making a million dollars realistically means you can expect a quarter million.
It’s easy, it’s useful, and you can start now.