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Projecting Sales

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					                                     Projecting Future Sales

                          By Maria D. Juarez, SBDC Assistant Director

When it comes to “the numbers” in a business plan, entrepreneurs are advised to work out
projections for the proposed business start-up or expansion.

Definition: Projections are calculations of potential sales / revenue and expenses for a business
over a determined amount of time. These figures are based on assumptions derived through
historical sales of a business, research, and reasonable expectations.

The Purpose: Projections can be a valuable tool for entrepreneurs. Not only can they help you
evaluate if your business will be or continue to be successful, projections can help you sell your
idea to your potential investors and/or lenders.

The Foundation: To be useful, projections must be based on reasonable, conservative
assumptions. Once you have decided on the products to be sold and/or services to be provided,
you should answer the following:

       Can the products and services be grouped by price, profit, or mark-up? What are the
       suggested or calculated prices of these products and/or services?

       What are the average figures for the industry? Statistics and Sales figures can be collected
       from Texas Comptroller of Public Accounts, statistical sources such as D&B or RMA, as
       well as Internet sites.

       Do you have existing financial statements or do you have access to information on sales
       and expense figures available for similar businesses?

       Have you calculated the average sales by ticket, client (referral or traffic capture rate), or
       capacity? Have you obtained expense figures from local sources such at your electricity
       provider or insurance agent?

The Calculations: We recommend collecting as much data as possible. With this information on
hand, you are ready to work out projections. Expenses can be calculated as a percentage of sales
or as fixed amounts. Advertising, for example, can be determined as a percentage; rent and
insurance may be a fixed monthly amount. For sales, you will need to decide which method you
will use: number of items sold, capacity, or a yearly figure calculated per month. We recommend
using the method which is more applicable to your proposed business type and easiest for you to
calculate and explain to others.

For assistance in gathering information and working on projections, please visit your local Small
Business Development Center.

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