1. Estimate your likely sales for each week or month
Use your sales history from the past couple of years to get a good idea of the weekly or monthly sales you can expect. Include seasonal patterns and one-off events, such as trade shows, in your projections. If you're just starting out, you’ll need to estimate your forecasts based on information from customer surveys, suppliers, the performance of similar businesses and industry experts such as your NAB Small Business Banker.
Don’t forget to factor in your future plans along with current market conditions and trends. If you’re planning a new marketing drive or launching a new product, for instance, you’ll need to include the anticipated increase in sales. On the other hand, if a new competitor has just entered the market, you might want to drop your forecast figures a little to allow for a possible loss of market share.
2. Estimate when you expect to receive payments
If you operate a cash sales business, forecasting is relatively easy since payment occurs at the time of the sale. If you sell on credit you’ll need to factor in the likely delay. If your terms are 30 days, for example, you can expect to receive payment between one to two months after the sale.
3. Estimate your likely costs
Costs are usually a mix of fixed and variable. Fixed costs are those you have to pay regardless of your sales, such as rent and salaries. Variable costs usually depend on sales. For example, you don't have to pay for stock you haven't ordered. Your forecast sales levels will help you to work out the amount of stock or raw materials you’ll need to buy in to meet your orders.
When you're identifying other bills, including when you need to pay them, it's a good idea to go through your historical payment records to make sure you don’t overlook annual or erratic expenses like accounting fees or business taxes.