Sales Forecast

Almost all financial plans require an externally supplied sales forecast. In our models that follow, for example, the sales forecast will be the driver, meaning that the user of the planning model will supply this value, and most other values will be calculated based on it. This arrangement is common for many types of business; planning will focus on projected future sales and the assets and financing needed to support those sales. Frequently, the sales forecast will be given as the growth rate in sales rather than as an explicit sales figure. These two approaches are essentially the same because we can calculate projected sales once we know the growth rate. Perfect sales forecasts are not possible, of course, because sales depend on the uncertain future state of the economy. To help a firm come up with its projections, some businesses specialize in macroeconomic and industry projections.

Why do you think most long-term financial planning begins with sales forecasts? Put differently, why are future sales the key input?

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