[MUSIC] Let's look at a key part of your business plan, and probably one of the best places to start, after you've looked at how you're going to price your products, and that's coming up with a sales forecast. In fact, before you can even look at any of the financials, I think having a good idea of what you think you can sell is a great place to start. If market demand is the limiting factor, and in most cases, it is, in other words, you can't sell everything that you make, then some form of sales forecasting is going to be required. It is a bit of a skill, because accurate sales forecasting is essentially sort of one of the most difficult things you can do. The entire forecast, or budget, or plan is based upon a projected level of sales, and all of the activities, if you're going to manufacture, such as production activities, and even your financing activities will be dependent upon and geared towards that forecast sales level. You should take the following into account when making your sales projections. If you have the data then maybe look at past sales volumes. That can always be a key factor here. General economic conditions also play a part. What's happening out there in the general business world? Here you can bring in potentially some of your pastel analysis that you've learned on your other modules. What about the competition? What are they selling? The scope of the market itself spoke about that earlier. Of course there will always be a limited amount that you can sell. How much of the market share do the competition have and how much is it that you want? What about your capacity? If you're making a product, what production capacity do you have, or will you have? Of course, developing your own production capacity will necessitate that you raise some finance in some way. And really, that's what the business plan is all about. What about advertising and promotion? Couple of things you need to think about there, one how much you're going to spend, but also how you're going to attack that particular problem. Sometimes it can be expensive, but doing some market research studies is a good idea, finding out what customers really want and what they're prepared to pay. Of course, the quality of your own sales team is important here. If they're untrained, it's a new business, well, then maybe, the quality of the sales team is not that great, so your expectations may not be as great. Of course, one other thing you need to think about here are season fluctuations. What sort of business is it you're going into here? Will there be seasonal fluctuations? Once the sales projections have been made, the various functional forecasts can then be prepared. Now if you're planning to manufacture a particular good then the functional forecast might be as follows, starting of course with that sales forecast, and then following on from that, well, how many you need to produce in terms of the units. Of course you want to produce enough that you can sell, but of course maybe you might want to produce a little bit more about than that. And that's because you always have some sort of stock or inventory that's available. If you're particularly manufacturing something and you know how many you're going to produce, then maybe you need to think about how much raw material you need to purchase to achieve that production. What about the people who are involved in making the direct labor? That's a cost as well. What about any manufacturing overhead, other cost, aside from the direct materials and the direct labour? This can be the rent if you wish of a small factory, if that's what you're planning to open up. I've mentioned this, what about your closing inventory or closing stock, something that you may need to have just in case? Your sales are better than you expected. And I think as well, selling and administrative expenses. They need to be brought into this forecast as well. For a manufacturing company, that's the order that you really have to follow. And so they're quite logical. And if you look at those steps, they see so you can see what they follow on from each other. When these forecasts are completed, you can then complete a protected Cash Flow Statement, cash budget, a Capital Expenditure forecast, how much you're going to spend on these large capital items, and then finally a projected Income Statement and a projected Balance Sheet can be prepared. The Cash Flow Statement, the Income Statement, and the Balance Sheet are all part of your financial plan that feeds into the overall business plan. [MUSIC]
