Revenue is probably the most important milestone of any business process because it’s a simple indicator of success.
Consistent revenue readings secure your working capital position and also allows you greater room in seeking external financing. You are better placed showing a bank or an investor the historical performance of your business.
Revenue isn’t only about knowing how you’re performing. It’s also about forecasting how things will go in the future. This way you can be ready to allocate resources or money on what you’ve decided is most important to you. You can choose to market your business or invest in more productivity, for instance. It’s your call.
Being keen on your revenue allows you to plan for growth. If your revenues are high enough and showing rapid growth the you can opt to grow by expanding your operations so that you enjoy economies of scale. You could also learn that it’s better if you focus inwards and make your business more cost-effective before expanding operations.
In carrying out revenue projection, you need to break down the time-frame so that no goal of your business is left unattended. Typically, entrepreneurs will have short term revenue projection to plan around how much to produce, medium term plan to budget their money and long term revenue projection to set the direction of their business.
These are not new suggestions to you. So, how come that when you do your revenue projection you find that the actual revenue you receive differs wildly from your prediction? Why should you even waste more of your time predicting stuff that is always wrong? Is it possible to get an accurate revenue projection?
The number reason that a revenue projection for a small business does not work out is because of how volatile their work environment is. This uncertainty is partly why banks in Kenya shy away from financing small businesses. It’s very hard to plan when your earnings come in the form of booms and bursts. Unfortunately, getting to a lot of money on a consistent basis is an issue of time.
Secondly, your strength of being adaptable is also to blame for your revenue projections not being close to accurate. You may change your approach to things in the middle of your plan, it’s normal, and this affects whatever bottom line you had hoped for. You could have planned to go intense with your marketing but then you discovered a tool that could double productivity and reduce cost – so you decide to invest in said tool at the expense of marketing.
Another strength that ends up jeopardizing your work is your optimism. Live Love Laugh, I know, but you have to be conservative when expecting revenue in future. This doesn’t mean that you lose touch with your personality. You can come up with a range of revenue projections in anticipation of different outcomes. It means more administrative work on your hands but the return is peace of mind. You can forecast high revenues, low revenues and a middle point between the two so whatever the economy throws your way you have an action plan for it.
More, you can become bolder and go beyond using qualitative means of predicting revenue. This mechanism relies almost entirely on your analytical skills but, let’s face it, even that can be clouded by bias. Why not try some math?
You’ll still keep things simple because you have to explain your revenue projection in your documents and in person. Two of the simplest of such tools are the moving average and the straight line. The former is about adding up your immediate previous revenue readings and dividing the sum by the number of readings you added. The answer will be your next revenue projection.
For the latter, all you have to do is make an educated guess on what your next revenue reading will be based on a number of your previous readings. This is like the people never change thing but for revenue management. Surely, your next reading cannot differ wildly from how you have been performing previously.
Fixing your revenue projection is not some one-upmanship to come up with the most complex prediction tool. Even though it wouldn’t hurt for you to consult a financial expert if you’re not strained for cash. They will almost never be the same as actual performance but you will gain a lot, for your planning, from keeping the difference small.0