CO QAH + MELC LW

Course Outline & Quality Assured HANDOUT No. 3

Handouts paired with MELC- ENTREPRENEURSHIP
Based Learner’s Worksheet

MELC: Forecast the revenues of the business and Forecast the costs to be incurred

Semester: 2nd Semester Week No. 3 Day: 1- 4

LESSON: Forecast the costs to be incurred

TOPIC 1: Definition of forecasting revenue, the steps to forecast revenue and its importance

DEFINITION OF FORECASTING REVENUE

What Is Forecasting?
Forecasting is the process of predicting the future based on past and present data and
analysis of trends. The purpose of forecasting is to establish benchmarks and some certainty
around financials as a business faces its future and the decisions it needs to make to survive and
prosper.

What Is Revenue?
 The amount of money that a company actually receives during a specific period, including
discounts and deductions from returned merchandise.
 Is calculated by multiplying the price at which goods or services are sold by the number of units
or amounts sold.

Revenue = Average Price per Unit x Number of Units Sold

Example: 2,000 x 50 = 100, 000 ---- Revenue

 Also known as sales on the income statement

Example 1: How to get the Revenue

Unit
Product January February March
price
Total
Uni Uni Uni
Amount Amount Amount
t t t
 Oven 1 PHP 2000 50 PHP 100000 120 PHP 240000 300 PHP 600000 PHP 940000
Oven 2 PHP 2500 400 PHP 1000000 500 PHP1250000 550 PHP1375000 PHP 3625000
Oven 3 PHP 3000 450 PHP 1350000 500 PHP1500000 750 PHP 2250000 PHP 5100000
TOTAL PHP 2450000 PHP2990000 PHP 4225000 PHP 9665000

Example 2: Forecasting Baseline Plus Campaign Activity

HOW TO FORECAST REVENUE?

1. Choose between judgment forecasting or quantitative (or mixture).

JUDGEMENT FORECASTING QUANTITATIVE FORECASTING

 Using your own intuition and
experience as the business
owner to set a general pattern
for your expectation of the
year’s income and expenses.
 More scientific, using actual past
revenue date from your own
business or other businesses in
your industry as a basis for
tracking trends and predicting
changes.

2. Start with last year’s revenue statements for a basis of prediction.

3. Consider any recent changes in personnel, products, pricing, competition or other factors which
could impact your future revenue.
4. Calculate anticipated revenue.
5. Separate individual income sources to get a clear picture of potential ups and downs from each
revenue stream.
6. Constantly review and update the forecast to reflect changes in your business.

IMPORTANCE OF FORECASTING REVENUE

 It establishes goals and sales targets.

 It forces you to know your numbers.
 It the business on the future by learning from its past.
 If you are publicly listed, your organization needs forecasts for shareholders, investors and
financiers.
 It highlights where different products are in the product life cycle.
 Accurate forecasts improve future business planning and decision making.

TOPIC 2: Explain the forecasting cost/expenses

An expense forecast estimates your ongoing operational costs over a period of time. Business
expenses may include (amongst others) rent, insurances, vehicles, advertising, employee wages, and
accounting and legal fees.
If you are starting a new business, base your forecast on market research and industry
benchmarks. If you are already operating a business, use records from previous years to assist you.
Make sure you allow for any likely changes, such as an increase in costs or employing additional staff.

“Proper financial forecasts of expenses will help you

 develop operational and staffing
Plans that will help make your business a success”

What Is Expense?
An expense is defined as an outflow of money or assets to another individual or company as
payment for an item or service.
An expense is the costs experienced by a company, paid out to suppliers or for products or
services from other sources. Within a business context, only expenses that relate the cost of business
operations should be included in the company’s records.

Forecasting Expenses

You must forecast every expense of the business including:

 Start-up Expenses. All the costs of getting your business up and running go into the start-up
expenses category.
 Fixed Costs. All the overhead costs of the business:
o Rent
o Utility bills
o Phone bills/communication costs
o Accounting/bookkeeping
o Legal/insurance/licensing fees
o Postage
o Technology
o Advertising & marketing
o Salaries
 Variable Costs. All of the costs that vary with the business.
o Cost of goods sold
o Materials and supplies
o Packaging
o Direct Labour Costs
o Customer service
o Direct sales
o Direct marketing

Here are some rules of thumb you should follow when forecasting expenses:

 Marketing. Double your estimates for advertising and marketing costs since they always escalate
beyond expectations.
 Legal and Insurance. Triple your estimates for legal, insurance and licensing fees since they’re
very hard to predict without experience and almost always exceed expectations.
 Sales and Customer Service. Keep track of direct sales and customer service time as a direct-
labour expense even if you’re doing these activities yourself during the start-up stage because
you’ll want to forecast this expense when you have more clients.
 Information about Other Businesses. If you have experience in the type of business you are
starting—for example, you worked at a similar business before striking out on your own—you will
probably have some idea of realistic financial projections, or may be able to talk to someone who
can give you more information.
 Accountants Can Help. Enlisting an accountant familiar with small businesses and start-up in
your industry such as a professional that could help a firm. An accountant will know what type of
expenses, sales and profits a well-run business in your industry can expect, and will be able to
help you come up with realistic financial projections.
 Industry Info. Industry associations and publications can help you compile.

REFERENCES
Web Bibliography
Bautista, K. Forecast the Revenues of the business: Develop the Business Model, Retrieved form:
https://www.academia.edu/37333959/FORECAST_THE_REVENUES_OF_THE_BUSINESS
How to Forecast Expenses – The Lonely Entrepreneur, Retrieved from:
https://lonelyentrepreneur.com/how-to-forecast-expenses/
Budget and forecast: Small Business, Retrieved from:
https://www.smallbusiness.wa.gov.au/business-advice/financial-management/budgets-and-forecasts
Books
Entrepreneurship, Diwa Senior High School Series, pages 137-151