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How Do Projections Benefit You and Your Company?
Projecting ahead several months to a year benefits your gross profits immediately. You can:
 » Anticipate when to adjust prices up, down, or both, on products or services. Measure the impact of holding a sale or raising prices now or soon on all or some of your products or services.
» Plan for and adapt to increased costs. You will have information to help you decide whether to buy more raw materials now and use your cash, or save the cash now for something else and risk having to use more cash later. Or, with big price increases coming and projected increase sales likely, it might pay to risk financing the purchase of more raw materials or inventory now.
» Ask “What if…?” questions about your business. Here are some examples.
1. What if you raise prices on one product line by 10% but lower them on another one by 20% for one month? How might that impact units sold? What happens to the gross profit?
2. What if you purchase more raw materials now for one product line to (1) take advantage of quantity discounts and (2) avoid cost increases later, but delay that for another product line because the price increase won’t be as large? What happens to the gross profit?
3. What if you put everything on sale for the holidays with different prices for each product or category of product? What can you project will be the increased unit sales? Will the projected increased dollar sales make up for the lowered price? What happens to the gross profit? Will the good will that the sale creates drive customers back later to buy at regular or increased prices? What will happen to the gross profit then?
 » Know when to add permanent/temporary staff.
It usually takes several weeks to hire a permanent employee. There’s also training time to consider for permanent and temporary employees. Projections give you the lead time you need.
» Order inventory / raw materials at the right time.
Take advantage of quantity discounts if you expect more sales or wait a few weeks before ordering to batch orders together. Or, if you are projecting lower sales, hold off or cancel ordering some raw materials or inventory.
» Monitor payroll costs closely. Closely related to the employee item, get a better handle on payroll costs.
» Manage cash flow more accurately. With a better knowledge of projected increased or reduced sales, you will know when to delay general expenses or risk certain purchases.
» Develop a relationship with your bank. Your bankers or loan officer will be more at ease when they see you are planning ahead. You increase your chances for financing.
© 2010 BTN-now.com
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