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Forecasting is sometimes as much "art" as "science". The goal, however, is to be as scientific as possible so as to leave very little need for art. The data that you will enter in the next several forms will determine whether or not your project is viable for funding and, more importantly, whether it is worth your input of time and money.

Generally, the best type of forecasting is based on historical data. If you are buying a going concern, get the sellers month to month data and review it until you know not only "what the numbers" are but "why they are what they are". With this information and knowledge of your plans and the general business climate, you can forecast changes to history to develop a very accurate and believable forecast.

If you are starting a new business the best type of forecasting is "like kind", that is, based on what similar businesses, in similar business climates, can be expected to do. If you are starting a franchised business, your franchisor will be able to provide you with exact information on like kind locations from which you can develop a very accurate and believable forecast.

If you are not become a franchisee, the information can be harder to get and somewhat less accurate but to the extent that it is possible you should try to gather "like kind" data. A good starting point is to talk to owners of similar businesses that do not compete in your market. In addition to gaining market and forecasting insight, you can establish a "win-win" relationship with others whose situation is similar to your own.

If neither of the two methods above are available to you, you will need to do "unit" forecasting. First, gather all of the industry data that are available to you on average sales and expenses. Next, break down the components of your sales and expenses to their individual units. Then, gather as much actual data on those units as you can. Get prices from vendors, count customers entering the competition, to the extent possible talk to customers (if your project involves direct sales - make sales calls), etc. With your "hard data" build your data from the ground up - "I can sell this many___, I will need this many___, etc. We suggest that you forecast very conservatively when using this method.

No matter which method (or combination of methods) that you use, keep track of the reasons why you are forecasting as you are, we will ask for them later in a section called "assumptions".

Finally, we suggest that you use the percentage amounts provided by the applets to check your work not to do your work. If you are called upon to "defend your numbers", it is better to know what makes up category A rather than to say "I took x% of y".

(C) 2003 Strategic Services Group, Inc. All rights reserved.