Considering the impact of Covid-19, you probably have made changes to your sales and marketing plans for 2020. Consequently, how do you know the impact of these changes to your bottom-line? Further, what is your revised profit and loss? That’s where financial forecasting comes in. Use your forecast to assess whether you can still achieve your financial goal for the year.
If you made adjustments to your sales and marketing plan, you can request your accountant to simulate the impact on your bottom line. Convert your new actions into numbers and incorporate them into your forecast. Your forecast is your tool to reinforce your plan. Moreover, it helps you identify which course of action is more profitable for your business.
Read more about Forecasting and Budgeting here.
How To Prepare Your Simple Forecasting Tool
You can also prepare the forecast yourself. It can be easily done especially if you have prepared your budget for the year. Also if you have your sales and marketing plans ready. Below is a simple process to prepare your forecast. I will call it Dynamic Forecast or DF, in short.
Learn how to properly do financial forecasting here.
1. Firstly, prepare a spreadsheet with your monthly budget. Name it 2020 DF (dynamic forecast). You should have columns for Jan-Dec and 2020. If you want to add quarterly columns, do so. Rows for Sales, COGS, Gross Profit, Operating expenses, tax, and net profit.
2. Then replace the numbers from January to April with your actuals (actual financial results). Make sure it’s accurate and complete. However, from May to December, it should contain your budget numbers.
3. Next, review your marketing and sales plans. Note the changes you are making. E.g. Move launch of a new course to October. Naturally, this impacts your sales and marketing expenses (Advertising, etc). In addition, adjust your sales volumes, pricing, or whatever change you are making.
4. Finally, reflect your changes on your DF. Adjust your figures from May to December. Now you have your 2020 DF.
Also, make sure that you have the resources to achieve everything you planned for and you’re not stretching yourself too much. Your forecast is your ever-changing tool. Since it is based on situational factors.
So to give you an idea on how to do it, I’m showing this simple process on financial forecasting. In addition, you can grab a copy of my simple spreadsheet through this link. The scenario is for an online business but the same concept applies to a brick-and-mortar business.
Scenario: As a result of quarantine due to Covid-19, you postponed your biggest sales launch from May to August. Believing that you will not be able to achieve your budgeted sales volume if you launch it now. Further, assuming you did your research already.
What is affected? Sales, COGS (Direct advertising costs, merchant fees, other direct costs related to the sales launch), Operating expenses (indirect expenses related to the launch like software).
Firstly, let’s cover Sales. Your May to July sales figure should be adjusted to reflect only your regular sales. However, adjust it to reflect the impact of Covid-19. For instance, are your sales figures from March to April took a dip? Are you expecting a downward trend or back to normal? At what month do you expect your sales to normalize? Also if downward, what are your expected volumes?
Then for August, input your sales figures considering your sales launch. Here you have to assess whether you can push your volumes higher through a more intense marketing strategy. But of course, you should also adjust your marketing expenses on your DF. If you expect to have a spillover of sales, then include that on your assumptions. Know which months are affected.
Lastly, the expenses must be adjusted based on your marketing changes and affected operating expenses. If you discontinued your ads since you moved your launch then adjust the affected months. Follow the same process as your sales analysis.
Download your FREE simple forecasting tool. It also has columns for your prior year financial results so you can see how your business has grown over 2 financial years.
Introduction to Budgeting and Forecasting
What’s the difference between budget and forecast? Why do you need a budget and a forecast? When to do a budget and a forecast?