Q: I see everywhere that when writing a business plan, one should forecast sales. How do you do that if you haven't started yet?
Sep 03 2006
Answered by: Clive Lewis Ask a question
A business plan is designed to inform the new business owner and other interested parties of the key information concerning the business. If you do not know how to do one you should read the article on this site by clicking here, or contact your local Business Link (government supported business start-up organizations) or Enterprise Agency.
There may be a cost and you should ask what that will be before you ask somebody to work on a business plan with you. To give you some idea the following issues need to be addressed in the plan:
* The exact services you want to provide, what competition there is locally and how much they charge. This with the other information following should enable you to estimate your sales figures.
* The location and cost of premises if any.
* The time it will take to get the business up and running.
* How you will advise potential customers of the existence of your business and the costs involved in marketing the business.
* The number of customers and selling prices to breakeven and the likely level of profits
* The time it will take to breakeven (the point at which the gross profit equals the fixed costs and additional sales means you will make a profit.)
To assess the potential sales, use all the resources available to you by, for example, searching the internet, making telephone enquiries, as well as visiting potential competitor premises, if possible. The local library is always a good place to start research on potential business projects. The Library has trade directories and information which can be a useful starting point.
As an example, if you were thinking of opening a shop, you would spend time at potential shop sites and count the number of passers by at varying times throughout the day. If there are shops in the area selling products you intend to sell, do the same outside their shop. Count how many customers visit the shop. Try to estimate the average amount spent per visit. Do this at differing times of the day and during the week to get a picture of the likely weekly takings.
Businesses with adequate resources will often conduct market research to test a product or service before launching it. It is always advisable to test the products or service of a potential new business before committing major set-up costs. If planning on opening a shop the product could be tested by setting up a market stall. You can then test potential customers’ responses to the offering. How many are sold? What happens if you increase or decrease the price – how much do the sales volumes change? Can customers offer suggestions how to improve the product? Do some products sell better than others? What other comments do customers make?
Whatever business you are thinking of starting, it is important to draw on whatever information you can. Many businesses are started by people with previous experience in the trade. They will therefore know the sales potential based on their experience. If you are starting a business with which you are unfamiliar, ask people already in a similar business for information, although it is inadvisable to contact potential direct competitors. It is vital to do research before starting. Probably the key information to find out is what the “going rate” (price) for the products or services you intend to provide.
The ICAEW cannot accept any responsibility for the answers to the smallbusiness.co.uk website. By their nature the questions do not give sufficiently precise and full information to give a personal response. The response is general guidance including where the enquirer might find further and fuller information of relevance to the current enquiry.
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