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Importance Of Sales Forecasting To The Entrepreneurial Start Up Firm

2253 words - 10 pages

TABLE OF CONTENTS

1. Introduction…………………………………………………………………4
2. Literature review and critical analysis………………………………………5
2.1 What is sales forecasting……………….……………………………...5
2.2 Importance of forecasting in a new B2C business………….…………5
2.3 What affects sales forecasting?..............................................................6
2.4 Techniques of sales forecasting…………………….…………………7
2.4.1 Judgmental methods……………………………………….7
2.4.2 Counting methods………………………………………….8
2.4.3 Newer methods…………………………………………….8
2.5 Adapting forecasting to the company……………………………………...9
3. Conclusion……………………………………………………………….….9
References…………………………….………………………………………10

LIST OF FIGURES

Figure 1: ...view middle of the document...

1 What is sales forecasting?

“Any sales forecast should be thought of as a best guess about customer demand for a company’s goods or services, during a particular time horizon, given a set of assumptions about the environment.” (Moon & Mentzer, 1999)

Anthony and Govindarajan (2007) identify sales forecast as a closest guess about consumer demand for products the firm produces in a certain period of time. There are various ways to produce sales forecast, it depends on the data used in the process, quantitative or qualitative. It predominantly aims to predict the amount of products and services sold as precisely as possible, attempt to lower the expenditures for inventory and transport. Sales forecast acts as a management control tool and is similar to budget as they both include almost the same elements, however, they differ from each other to some extent (Anthony & Govindarajan, 2007).
Budget usually requires approval from senior management and is made for a certain period of time being strictly measured in financial units, when forecast does not have to be approved by the top managers, has no time restrictions and can be expressed in as physical as financial units. Moreover, sales forecast gets updated in case of any vicissitude in the projection, while the budget revision process requires more resources to be performed (Kullvén, & Johansson, 2005). This is the main reason why forecast is used by modern firms more often then a revised budget. According to Merchant & Van der Stede (2007), besides using sales forecast as a cost-reducer, companies figured out that it is a useful controlling and coordinating utensil for business.
As it has been stated above, sales can be expressed in financial units as well as physical, or both. Measuring in physical units allows the firm to neglect the currency exchange impacts on sales. However, financial measurement helps the organization to figure out how sales act on the whole business. The best way to create an accurate sales forecast is to employ both types of units because the more data, quantitative and qualitative is used, the more reliable the forecast becomes (Mentzer & Moon, 2005).

2.2 Importance of forecasting in a new B2C business

  Sales forecasting is a business concept that refers to a process of predicting sales revenue over a certain period of time in the future. For example, it could be next month, quarter or year. It is highly significant to use the sales forecasting process not just to understand and manage sales activities, but also to control the growth and enhance the entire company.

There are three main reasons why it is crucial for new established companies prepare sales forecasts:

1. It helps the manager to understand and manage cash flow because many companies have gone bankrupt because of less concentration on planning their cash flow.

2. Sales forecasting also helps to plan the company’s procurements, production and logistics capacity. Not...

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