FORECASTING

THE REVENUES OF
THE BUSINESS
presented by: Group 6
One of the most challenging parts in developing a
business plan is the financial plan. This part allows the
entrepreneur to make decisions based on financial
assumptions without even having started the business.
Therefore, these financial projections should be given
the most attention by the entrepreneur.
Making informed estimates requires careful considerations
on several factors that might affect the outcome of your
travel such as, distance from home to school, the means of
transportation you will be taking, the number of
passengers and etc. Traveling from home to school on a
regular basis had helped you arrive with an estimate that
was very close to the actual time of arrival.
Considering these factors is essential in making
informed estimates by the entrepreneur. Since the
business he/she is venturing hasn’t started yet, it is
important that these factors affecting forecasting will
be determined to better help him/her in making the
best decisions for the business.
For the entrepreneur, after realizing the potential for
profit of his/her business concept, the next step is to
estimate how much the revenue is on a daily,
monthly and annual basis. Before going to
forecasting and projecting the revenues of the
business, let us determine first what revenue is.
Revenue is a result when sales exceed the cost to produce
goods or render the services. Revenue is recognized when
earned, whether paid in cash or charged to the account of the
customer. Other terms related to revenue include Sales and
Service Income. Sales is used especially when the nature of
business is merchandising or retailing, while Service Income
is used to record revenues earned by rendering services.
This time, let us study the various factors to consider in
forecasting revenues. The entrepreneur would want his/her
forecasting for his/her small business as credible and as accurate
as possible to avoid complications in the future. In estimating
potential revenue for the business, factors such as external and
internal factors that can affect the business must be considered.
These factors should serve as basis in forecasting revenues of
the business. These factors are:
1. The economic condition of the country. When the
economy grows, its growth is experienced by the
consumers. Consumers are more likely to buy
products and services. The entrepreneur must be able
to identify the overall health of the economy in order
to make informed estimates. A healthy economy
makes good business.
2. The competing businesses or competitors. Observe how your
competitors are doing business. Since you share the same market
with them, information about the number of products sold daily or
the number of items they are carrying will give you idea as to how
much your competitors are selling. This will give you a benchmark
on how much products you need to stock your business in order to
cope with the customer demand. This will also give you a better
estimate as to how much market share is available for you to exploit.
3. Changes happening in the community. Changes happening in
the environment such as customer demographic, lifestyle and
buying behavior give the entrepreneur a better perspective about
the market. The entrepreneur should always be keen in adapting
to these changes in order to sustain the business. For example,
teens usually follow popular celebrities especially in their fashion
trend. Being able to anticipate these changes allows the
entrepreneur to maximize sales potential.
4. The internal aspect of the business. Another factor
that affects forecasting revenues in the business
itself. Plant capacity often plays a very important
role in forecasting. For example, a “Puto” maker can
only make 250 pieces of puto every day; therefore,
he can only sell as much as 250 pieces of puto every
day.
The number of products manufactured and made
depends on the capacity of the plant, availability
of raw materials and labour and also the number
of salespersons determine the amount of
revenues earned by an entrepreneur.
Now that all factors affecting forecasting
revenues are identified, you can now calculate
and project potential revenues of your chosen
business. The table below shows an example of
revenues forecasted in a Ready to Wear Online
Selling Business.
Example: Ms. Fashion Nista recently opened her dream business
and named it Fit Mo’to Ready to Wear Online Selling Business,
an online selling business which specializes in ready to wear
clothes for teens and young adults. Based on her initial interview
among several online selling businesses, the average number of t-
shirts sold every day is 10 and the average pair of fashion jeans
sold every day is 6. From the information gathered, Ms. Nista
projected the revenue of her Fit Mo’to Ready to Wear Online
Selling Business.
She gets her supplies at a local RTW dealer in the
city. The cost per piece of t-shirt is 90 pesos, while a
pair of fashion jeans costs 230 pesos per piece. She
then adds a 50 percent mark up to every piece of
RTW sold. Mark up refers to the amount added to the
cost to come up with the selling price. The formula
for getting the mark up price is as follows:
Mark Up Price = ( Cost x Desired Mark Up Percentage)
Mark Up for T-shirt = ( 90.00 x .50)
Mark Up for T-shirt = 45.00
In calculating for the selling price, the formula is as
follows:
Selling Price = Cost + Mark Up
Selling Price = 90.00 + 45.00 Selling
Price for T-shirt = 135.00
Table 1 shows the projected daily revenue of
Ms. Nista’s online selling business.
Computations regarding the projected revenue
is presented in letters in upper case A, B, C, D,
and E.
Table 2 shows the projected monthly and
yearly revenue of Ms. Nista’s online selling
business. Computations about the monthly
revenue is calculated by multipying daily
revenues by 30 days ( 1 month).
For example, in Table 1 the daily revenue is
3,420.00. To get the monthly projected revenue it is
multiplied by 30 days. Therefore,
Projected Monthly Revenue = Projected Daily
Revenue x 30 days Projected Monthly Revenue =
3,420.00 x 30 Projected Monthly Revenue =
102,600.00
On the other hand, the projected yearly revenue is
computed by multiplying the monthly revenue by 12
months. The calculation for projected yearly revenue is as
follows.
Projected Yearly Revenue = Projected Daily Revenue x
365 days
Projected Yearly Revenue = 3,420.00 x 365 Projected
Yearly Revenue = 1,248,300.00
Table 3 shows the projected monthly revenues covering one
year of operation. The table shows an average increase of
revenue every month by 5 percent except June, July to
October and December. While the month of June has twice
the increase from the previous month by 10 percent, let us
consider that months covering July to October are considered
to be Off-Peak months, therefore sales from July to October
are expected to decrease.
 It is assumed that there is no increase in revenue
from July to August, while from August to October
the decrease in revenues is 5 percent from previous
month. Since revenues from sales of RTW’s are
considered to be seasonal, it assumed that there is a
10 percent increase in revenue from November to
December.
 Computation for assumed increase of reveneue on
specific months is as follows:
Projected Monthly Revenue (Increase) = Revenue
(January) x 5 % Increase
Projected Monthly Revenue (Increase) = 102,600.00
x .05
Projected Monthly Revenue (Increase) = 5,130.00
 Projected Revenue for February = Revenue
(January) + Amount of Increase
Projected Revenue for February =
102,600.00 + 5,130.00 Projected Revenue
for February = 107,730.00
 On the other hand, decrease in revenue is computed
as follows:
Projected Monthly Revenue (Decrease) = Revenue
(August) x 5 %
Increase Projected Monthly Revenue (Increase) =
144,041.14 x .05
Projected Monthly Revenue (Increase) = 7,202.06
 Projected Revenue for September = Revenue
(August) - Amount of Decrease
Projected Revenue for September =
144,041.14 – 7,202.06
Projected Revenue for September =
136,839.08
 Important Assumptions:
February to May- Increase of 5% from previous revenue
June- Increase of 10% from previous revenue
July to August -The same Revenue
September to October- Loss of 5% from previous revenue
November- Increase of 5% from previous revenue
December- Increase of 10% from previous revenue
 The numbers in the last table are very attractive, having
revenues that are increasing in numbers is a good sign that a
business is growing. However, an entrepreneur should not be
overwhelmed by these revenues, as these are just gross
revenue, this is not the final amount of profit or income an
entrepreneur will get at the end of every period. Take note
that the amount of net revenue is still subjected to the
expenses incurred in the operation of business.
 You have learned in Lesson 1 that the revenue generated by selling RTW’s
has a corresponding amount of costs incurred. This cost is the amount of
RTW before adding its mark-up price. Each piece of t-shirt has a
corresponding cost of 90.00 pesos, while each pair of jeans has a
corresponding cost of 230.00 pesos. These costs are incurred each time
revenues are generated. On the other hand, the business also incurs costs in its
operation, these costs are called Operating Expenses. Operating expenses
such as payment on Internet connection, Utilities expense (Electricity),
Salaries and Wages and Miscellaneous are essential in the operation of the
business; this allows the business to continue to operate in a given period of
time.
 You have just learned about what cost is. This time let us
identify costs and expenses incurred by the business.
Cost of Goods Sold / Cost of Sales refer to the amount of
merchandise or goods sold by the business for a given period
of time. This is computed by adding the beginning inventory
to the Net Amount of Purchases to arrive with Cost of Goods
available for sale from which the Merchandise Inventory, end
is subtracted.
 Merchandise Inventory, end refers to goods and
merchandise left at the end of operation or
accounting period. Freight-in refers to amount
paid to transport goods or merchandise purchased
from the supplier to the buyer. In this case, it is
the buyer who shoulders these cost.
In a merchandising business such as Fit Mo’to Ready to
Wear Online Selling Business, the formula to compute for
costs of goods sold is as follows:
Merchandise Inventory, beginning- P XX.XX Add: Net Cost
of Purchases- XX.XX
Freight-in- XX.XX
Cost of Goods Available for Sale- P XX.XX
Less: Merchandise Inventory, end- XX.XX
Cost of Goods Sold- P XX.XX
Let us calculate the cost of goods sold by Ms. Fashion Nista’s
online selling business for the month of January. Table 4 shows the
costs incurred during the first month of operation of Fit Mo’to
Ready to Wear Online Selling Business. Since Ms. Nista gets her
stocks from an online supplier, there is no need to order ahead and
stock more items. Therefore, there is no Merchandise Inventory,
beginning as well as Merchandise Inventory, end. Ready to wear
items purchased online from the supplier are then sold as soon as
they arrived.
Cost of goods is calculated by simply multiplying the
number of items sold every month (300 t-shirts and 180
pairs of jeans) to its corresponding cost per unit ( 90.00
pesos for every t-shirt and 230.00 pesos for every pair
of jeans). A cost in transporting the goods from the
supplier to the seller (Ms. Nista) or Freight-in is then
added to Net Cost of Purchases.
Table 5 shows how freight-in is calculated. It is
assumed that at an average, Ms. Nista pays at least
250.00 pesos for every 12 items delivered successfully
by her supplier through a courier service. Since her
average order is 480 pieces every month, she pays:
480 pcs. / 12 pcs. = 40
40 x 250.00 = 10,000.00
Let us now substitute the values from
Table 4 and Table 5. Since there is no
Merchandise Inventory, beginning and
end, let us add Cost of Purchases and
Freight-in to get the Cost of Goods Sold.
Now that the cost of goods sold is now calculated, let us now
identify expenses that the business incurs in its operation.
Operating expenses such as Internet connection, and Utilities
like electricity and miscellaneous expense are important to
keep the business running. These expenses are part of the total
costs incurred by the business in its day-to-day operation and
are paid every end of the month. The operating expenses and
assumed amounts are presented below:
To calculate the total costs incurred by the
business, cost of goods sold and total operating
expenses are then added. The calculation for the
costs incurred for the month of January is
presented below:
The projected monthly costs covering the first of
operation of Ms. Nista’s Fit Mo’to RTW Online
Selling Business is presented in Table 6.
 THANK
YOU FOR
ATTENTIVE
LISTENING