A sales forecast is an important part of a company’s overall strategy because it allows it to plan its activity and determine the resources needed to achieve its objectives.
It can help the company to define its production, marketing and financing strategy, and to make informed decisions on the allocation of its resources.
Sales forecasts help optimize a company’s resources in several ways:
Sales forecasting can help determine a company’s cash needs by allowing it to predict future cash inflows and outflows.
By knowing the expected sales, the company can estimate its future sales and determine the expected expenses (eg production costs, salaries, taxes, etc.).
Sales forecasts can help determine when to expand production capacity in several ways:
By forecasting future demand: By knowing the expected sales, the company can estimate whether it will be able to satisfy its customers’ demand with its current production capacity or whether it will have to increase its capacity to meet future demand.
Assessing costs and benefits: Before making a decision on expanding production capacity, the business should assess the associated costs (e.g. investment in equipment, labor costs, etc.) and potential benefits (eg increased sales and profits).