Projecting Revenue in Cyclical Industries

by Craig Anthony

1 min read

There are challenges to forecasting your revenue, since it’s difficult to predict the future. This is even more harder when your business is in a cyclical industry with results that are sensitive to the economic cycle. There are four phases: expansion, peak, contraction, and trough. Even professional economists have difficulty predicting the economy’s performance. However, there are ways to make the budgeting process easier. For starters, you can use accounting software such as QuickBooks, which has a sales forecast template. Understand your business and the factors that push revenue. That way, you can determine how much of your business is affected by the economy. You may choose to forecast your revenue based on recent economic performance, since you likely see trends changing prior to economists. When you’re relying on history, the most recent period is usually the best to use. If you see major changes in the economy, update your revenue forecast. Just forecasting your top line once a year isn’t enough. Go back to a similar economic time, such as when GDP growth was fast or slow, and see how this impacted your revenue. Another tool is to study industry trends. For instance, if you are a supplier to automobile manufacturers, you can check their monthly sales figures. You can also see how your peers are doing through word of mouth or looking at financials if it is a large enough business. Keeping on top of your revenue forecast helps you plan future initiatives and affects your cash flow. While challenging, projecting your revenue is a crucial step in running your business.

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