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Sales Forecasting

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Shop owners have to know how much money they’re bringing in to develop financial plans and benchmarks. That’s where sales forecasting comes into play. Solid monthly and annual sales projections help to ensure you can cover costs throughout the year.

Kevin Donohoe, instructor and procedures consultant for the Educational Seminars Institute (ESI) and CEO of Pacific Motor Service in Monterey, Calif., discusses how you can forecast your shop’s sales, and how that serves as the basis for financial planning.

Forecasting sales is critical for managing your shop from a financial perspective. That’s what estimates the revenue your business will generate and the cash flow you’re likely to have on a monthly and annual basis. You need to know how much money you’re bringing in to make a plan for covering expenses and allocating or investing money. You have to have this foundational information in place in order to properly prepare, monitor and evaluate for the future. Otherwise, you could be overspending without knowing it, which will get you into trouble over time.

All shop owners should forecast sales on an annual basis for every month of the year. There are several factors to consider, and it can be fairly complicated. Here’s how to do it:

1. Assess sales history. Look at your gross revenue performance in previous months and years. Assess your five-year history to gain perspective on sales trends—whether sales tend to drop, increase or remain flat—year-over-year or during certain months or seasons. Understand the historical significance of your financial statements, and identify if they are good representations of your current business conditions. Put the most weight on the previous year’s performance. That’s the most relevant information to apply to your business for the new year.

2. Compare months. Sales should be forecast for each individual month. That’s because sales performance can change based on seasonal factors such as weather. So don’t base your projection for June on your performance in January. Instead, base each month’s projections on that same month’s performance from the prior year. For example, when forecasting for June 2013, assess your performance from June 2012.

3. Assess business changes. Identify whether you’ve had any business changes that will impact your sales performance compared with previous years. That could include staffing changes, facility changes or equipment additions that lead to more efficient work. It could also include new marketing initiatives, service offerings, partnerships or pricing structures that are expected to increase sales. Determine the impact those changes will have on revenue.

4. Assess market changes. Identify whether there are any market trends that might affect sales performance. For example, large hiring or firing trends or demographical changes in your community can have big impact on the repair market. In addition, new shops in town could add more competition and threaten sales.

5. Set goals. Look at whether you want to replicate past sales or increase by a certain percentage. If you hope to increase sales, outline exactly how that will happen. Highlight how you plan to increase the number of repair orders or the cost of each ticket. That’s critical to do because the sales forecast has to be based on realistic goals, not dreams. 

Track your sales forecast on a daily and weekly basis to monitor your progress toward the monthly goal. Break that number down into smaller chunks by the number of workdays and the average number of repair orders you process. That tells you exactly how many jobs should be processed and how much revenue should be obtained every day.

Forecasting sales allows you to track trends to make better business decisions. Understanding your actual sales performance in relation to your forecast helps you know whether you need to make financial cutbacks, or if you can afford new investments. If sales are less than forecast, you know that an adjustment to reduce overhead costs needs to be made in order to stay on track financially. If sales are higher than expected, you may be able to afford to reinvest in the business for growth, such as hiring another employee or purchasing a new piece of equipment. If you’re paying attention to your benchmark daily and weekly, you can see certain conditions develop so that you can make the right adjustments and preparations proactively. 

Shops should put a reporting process in place to track that through their management system. You can print spreadsheets, graphs and charts to visually monitor progress. That allows management and staff to know what sales look like each day, and how they’re actually performing in relation to the forecast. That way there are no surprises; everybody is clear on the financial performance, and what they can do to help achieve the ultimate goal.

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