The sales forecast of your business -- typically a 1-year (monthly) and 3-year (quarterly) forecast -- is an essential tool to not only show your expectations for sales, but also to use for your other financial statement, the profit-loss projections. You will never have perfect information, so remember that at best, your forecast is an estimated guess as to what to expect. Of course, you want to base the forecast on as much information as possible.

Note: If you sell more than one type of product or service, prepare a separate sales forecast for each service or product group.

How do you develop a realistic sales forecast for your business?

• Examine industry sales surveys
• Gather sales intelligence on competing products/services
• Talk with neighboring businesses
• Contact local chamber of commerce or merchant association
• Determine your local trading area -- how far will your customers come from -- and then estimate the percent of your target market in your trading area
• List and estimate sales of competing businesses in your trading area
• Make an educated guess at the number of customers you hope to attract to your business, as well as how much each is likely to spend per visit. Keep your estimates very conservative
• Prepare sales estimates month by month. Remember that your early start-up month sales will be typically be slower until word-of-mouth builds -- and don't forget to include any seasonal fluctuations
• Consider having an industry expert review your assumptions and projections, and make changes as necessary

Once you start operating the business, track projected and actual sales, and once you have enough data, make adjustments to your future forecasts to better project sales and profits.