Why does a small business like A Touch of Tuscany need to forecast its sales for its third year of 2011?
The projections of sales is one of the key components of a business plan. The reason that a small business like A Touch of Tuscany need to project its sales, is that the sales projection become the basis for all financial planning and projections for the business in the business plan. This section of business planning gives a business owner like Jack Gordon the ability to convey his sense of what the growth of the business will be like to the reader of the business plan, who may be a banker or potential partner.
Since it is the revenues that drive the entire income and expense statement, the assumptions that a small business owner like Jack Gordon makes about the sales numbers are very important. If you get these numbers wrong, all your forecasts and expectations of profitability will be inaccurate. A clear balance has to be maintained at all time between not being too conservative and too aggressive. If we choose to forecast the first years sales in an overly aggressive manner, it could easily backfire in many ways:
Should the sales forecast for the third year of 2011 be any different that those for 2009 or 2010?
That would depend on the changing dynamics for a business like A Touch of Tuscany. Thus if Jack Gordon anticipates a change in business conditions that will substantially affect the sales for either 2009, 2010, or 2011, the sales forecasts will have to adjusted accordingly. If not, then the sales forecasts should take in the same inputs in 2009 and 2010 as they did in 2011.
What are the inputs that go into projecting the sales forecast for the third year of 2011?
There are two direct inputs that make up the sales projection for the third year of 2011. The first is price per unit of product or service and the second is the sales volume in units of product or service. There are many items that can be taken into consideration for the projection of price per unit, but the most important has to do with positioning. Thus if a small business like A Touch of Tuscany has chosen to position itself on the top end of the market, its owner, Jack Gordon will price out the product or service accordingly.
The second aspect of a sales projection is of course the number of units of product or service sold. This number is arrived once the price per unit is set and the seasonality of the sales projection for the third year of 2011 has also been established.
What is sales seasonality and how does it affect the sales projection for the third year of 2011 in a business plan for A Touch of Tuscany?
Seasonality of sales for the third year of 2011 refers to the how the sales for the year will be affected by seasonal changes in the buying patterns of a target market like Westchester County, New York. If we feel that there is no seasonality then we can assume that the sales for the entire third year of 2011 will be evenly distributed and there wont be any changes in the pattern of revenues. On the other hand if an industry like Full Service Restaurant does experience seasonal flucations in sales where for example things are slower in the summer than during the rest of the year, then this seasonal variability must be factored into the sales projection for the third year of 2011.
What is a slow market, good market and great market for a small business like A Touch of Tuscany.
Anytime sales projections for the third year of 2011 for a small business like A Touch of Tuscany are being projected, it is very important to recognize that there are three distinct sales environments that the business will possibly face in its third year of business in 2011:
It is important to recognize that different market conditions require that the sales projection be adjusted accordingly and having these scenarios play out in the sales projections shows that the planning and strategy of a small business owner like Jack Gordon has taken into account many scenarios and not just the one with the best possible outcome.
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