Monday, August 11, 2008

Inventory and sales forecasting

Most small businesses do not invest the time in forecasting future sales- even though cash flow projections demand it! Accurate forecasting of future sales not only impacts your cash flow projections, but it also becomes the foundation for establishing adequate and realistic inventory levels. Without a solid projection of future sales, managing your company's inventory and cash flow would be difficult at best. Sales forecasting is a critical activity for reducing risk and avoiding the high costs of either under-stocking or over-stocking of material. Sales forecast are not without its set of problems. If sales forecasts are projected too optimistically, then cash is often tied up in slow-moving inventory and profit margins are reduced due to wasted overhead. On the other hand, if sales forecasts are projected too pessimistically, then the result is poor delivery performance, dissatisfied customers and revenue shortfalls due to limited product availability. The benefits of sales forecasting far out way any of its pitfalls: increased revenue, increased customer retention, increased operational efficiency, and overall decreased costs.

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