2.2 - Financial Planning Flashcards
(54 cards)
What is the purpose of a sales forecast?
To predict future revenues based on past sales figures, including factors like sales volume, market size, and promotional impacts.
How do sales forecasts support business planning?
They help determine resource requirements, including staffing, stock, capacity, equipment needs, finance, and promotional activity.
How do seasonal variations impact sales forecasts?
Demand for goods can vary seasonally, with events like holidays or school terms influencing sales (e.g., homeware sales increase when students start university).
How does fashion influence sales forecasts?
Trends led by celebrities or media can cause a short-term spike in sales, as seen when Megan Fox’s appearance boosted Boohoo’s sales by 400% in September 2021.
How do long-term consumer trends affect sales forecasts?
Shifting consumer behaviors, such as increased demand for eco-friendly products, require businesses to adjust their sales forecasts (e.g., Ford increasing electric vehicle sales forecasts by 70%).
How does economic growth impact sales forecasts?
During economic growth, consumer incomes increase, leading to higher sales than forecasted. The opposite occurs during economic slowdowns.
How does inflation affect sales forecasts?
Rising inflation reduces consumer spending power, leading to downward adjustments in sales forecasts.
How does unemployment impact sales forecasts?
Higher unemployment typically reduces consumer spending, especially on luxury and non-essential goods.
How do interest rates influence sales forecasts?
Higher interest rates make borrowing more expensive, leading to downward revisions in sales forecasts, especially for goods bought on credit.
How do exchange rates affect sales forecasts?
When the value of the domestic currency falls, exports become cheaper for foreign consumers, which may lead to upward revisions in sales forecasts.
How do competitors’ actions affect sales forecasts?
Competitors’ sales promotions or strategic changes (e.g., opening new stores) can influence a business’s sales, but these actions are difficult to predict.
What are some challenges in sales forecasting?
Problems include over-reliance on past data, the influence of external factors (like trends and competitor actions), and the large volume of data to analyze.
Why is constructing an accurate sales forecast difficult for small businesses?
Small businesses may lack the experience, specialized personnel, or resources to analyze and interpret the necessary data effectively.
What is experience bias in sales forecasting?
It occurs when past experiences unduly influence expectations of future performance, leading to unreliable forecasts.
Why is it difficult to select appropriate external data for sales forecasts?
External data, such as market trends and competitor actions, requires careful evaluation, and not all of it will be relevant or reliable.
What factors should be considered when evaluating a sales forecast?
Consider who is responsible for the forecast, which data is used, and how reliable the data sources are.
What might be better than a poorly constructed sales forecast?
No sales forecasting at all, as inaccurate or biased forecasts can be more harmful than helpful.
What is sales volume?
The number of units sold by a business (e.g. number of album downloads).
What is sales revenue and how is it calculated?
Sales revenue is the total value of units sold.
Formula: Sales Revenue = Price × Quantity Sold
Why is sales revenue important?
It is a key performance measure and necessary to calculate profit.
Why is it harder to calculate sales revenue for businesses with multiple products?
Because each product has a different price and sales volume, making tracking complex without a computer system.
What are fixed costs? Give examples.
Costs that do not change with output (e.g. rent, salaries, insurance).
What are variable costs? Give examples.
Costs that vary with output (e.g. raw materials, wages for production staff).
How do you calculate total costs?
Formula: Total Costs = Fixed Costs + Variable Costs
