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Business Plan Research & Preparation

10 Ways To Validate A Sales Forecast

Even without data, there are other ways to test your projections to place in your business plan.

Tim Berry

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You have an interesting new business and you’re working your business plan, thinking about seeking investors when you come to the sales forecast. How do you validate a sales forecast when you’re talking about something new? Of course there’s no data. So now what?

I’ve been on both sides of the table on this one – as an entrepreneur, seeking investment and an angel investor, and as a business plan contest judge, evaluating new business plans. I’ve also spent a lot of years in the middle –as consultant to investors and as consultant or co-founder for the entrepreneurs. Given that background, here are some thoughts that might help you validate sales.

1. Sales are the best validation by far. Real, actual sales, even if they’re just a single involved customer, or a small account. Sales means people or companies are spending money to buy what you’re selling. That’s light years ahead of blank projections.

2. A buy-in by a potential large customer or distribution channel is also a good validation. Getting them involved with a prototype, beta programme, or early investment is great.

3. Overall market demographics. How many of your potential customers (the more carefully defined, the better) are there? How do they divide into meaningful, measurable groups? This injects reality into your forecast. Know the top numbers in the market.

4. Avoid the small-piece-of-a-huge-market gambit. This is the top-down forecast that starts with how much money is spent on say, home entertainment, then projects that your business will get some tiny piece, like half a percent. That is never convincing. Don’t do it. It’s deadly.

5. Break a forecast down into pieces. Divide and conquer. For example, if you’re forecasting a web application, show it as a function of projected inbound traffic, clicks from paid search and visitors from organic search, then conversions, subscriptions, renewals and attrition.

Granularity makes a forecast feel more solid. As another example, if you’re forecasting a restaurant business, break it down into chairs and tables and meals served, drinks, dinners, lunches, by day of the week and, at least as a sample point, hours of the day.

6. Always acknowledge capacity issues. The restaurant has chairs and tables, and the web application has bandwidth and users. Don’t ever get caught forecasting beyond capacity.

7. Look for patterns from other situations, similar products or business offerings, similar markets. There are introduction patterns available for televisions, colour televisions, personal computers, faxes, cellphones, etc. Is your business going to be like any of them?

8. Never pretend there won’t be competition, even for the newest of the new. If you can’t find anybody competing already where you want to go, look harder. Look for how people are already solving the need.

Before I did the early business plan templates I started publishing in 1984, there was nobody else in the market but I was competing with books, classes and magazine articles. I could also anticipate that if my stuff caught on, others would appear in the same market.

9. Distrust the data analysis. I had great success once with an epidemiology model, predicting penetration of personal computers in Latin America would behave like the spread of disease; one user infecting others, with different economic strata having different propensity for infection.

But even that, and most of the mathematical analytical methods, are always subject to the problem of using the past to predict the future. They’re good as background, to temper your thinking and educate your guessing. But they don’t stand alone very well. Do all the analysis, get as much data as you can, but be realistic. The best forecast is a well educated guess.

10. Review and revise forecasts frequently. Write down your assumptions and track how they’ve changed over time. Your forecast is just the first step in a process.

Apps-for-Business-Plans-Writing a Business Plan

Tim Berry is the founder of Palo Alto Software, a co-founder of Borland International, and a recognised expert in business planning. He makes several notable appearances in Fire in the Valley, Swaine and Freiberger's classic history of the PC industry, and is the originator of plan-as-you-go business planning. He has an MBA from Stanford and degrees with honours from the University of Oregon and the University of Notre Dame.

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Business Plan Research & Preparation

Free SWOT Analysis Template

While all SWOT analysis templates comprise the same basic elements, ie Strengths, Weaknesses, Opportunities and Threats, the information you slot under each heading can make or break your planned product or solution launch.

Nicole Crampton

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A SWOT analysis can be used to determine risks and rewards when considering a new business or product.

SWOT stands for strengths, weaknesses, opportunities and threats. It is an analytical framework which your business can use to defeat its challenges and discover a promising new market. While you are busy with your business plan research and preparation, it is crucial to conduct a SWOT analysis.

The ideal result of a SWOT is precise information. This can be used to develop an action plan for dealing with weaknesses and threats and enabling you to use your strengths and opportunities to your advantage. The analysis will result in business awareness and is the foundation of any successful strategic plan.

It isn’t possible to map out a business’s future accurately without evaluating it from every angle first. This involves a comprehensive look at both internal and external resources and threats. A SWOT analysis achieves this in four easy steps.

A small business owner can use a SWOT analysis to guide their business by leveraging strengths along with outsourcing and partnering up with others where you are weak and focusing on opportunities and being aware of threats.

Why Use a SWOT analysis

SWOT-TemplateA SWOT analysis enables businesses to recognise both internal and external influences. The primary objective of a SWOT analysis is to show to businesses all the factors which are affecting their planning and decision making. This analysis can be applied to products, places, people and any types of industries.

For those starting a new business, walking through a SWOT analysis will help you to identify strengths and weaknesses related to the elements of your business that are integral – those factors within your control (such as niche, service or delivery, features and brand positioning).

A SWOT analysis will also help you to quickly identify threats and opportunities – these are extraneous factors that are outside of your control that may have a big impact on your business. Examples may include legislation, industry growth or shrinkage, emergence or decline of competitors.

SWOT is mainly used as an assessment technique and has become an instrumental tool in project management. A good SWOT analysis can be used as a dashboard to your products. Done correctly this analysis can assist you in navigating and implementing a thorough strategy. This can be used for your business no matter the size of your business or industry.

Businesses and management suggest that you continuously revisit your SWOT analysis yearly in order to keep up to date in the constantly shifting market trends. Business owners agree that it is a clear and concise way of communicating the businesses most important characteristics.

Related: How To Perform a SWOT Analysis

When Should You Use SWOT?

SWOT-useSWOT is designed to be used in the proposal stage of strategic planning. It should be used before any kind of business action, it can be used for the following four scenarios:

  1. Exploring possibilities for new initiatives
  2. Deciding on an implementation strategy for a new policy
  3. Recognising likely areas which need to be changed in a program
  4. Refining and redirecting energy after the commencing of a project.

SWOT analysis can be used for organisational purposes such as for finding solutions, finding obstacles and highlighting opportunities. Using a SWOT analysis improves business operations as well as decision making abilities.

It also allows management to recognise high performing key areas along with areas which need improvement. However, small business owners tend to view this type of analyses as casual. As a small business owner if you were to do a formalised SWOT analysis you would be able to improve on:

  • Capitalising on their businesses strengths
  • Improve on and eliminate the businesses weaknesses.

Both the business owner and other members of the team should be involved in the SWOT analysis process. By doing this you can combine the collective knowledge of the team.

It also removes blind spots which, if left unchecked, could be damaging to your business or your relationship with customers. By including your whole team it will also give your team a better understanding of your business and a feeling of increased involvement in your business.

Make sure not to use the SWOT analysis as an all-in-one fix. It is a self-analysis tool which can be used incorrectly when ego or insecurities are allowed to manipulate the information. In order to use this analysis properly you must be honest with yourself as well as be willing to give feedback that reflects your capabilities, accomplishments and skills truthfully.

Related: How to Write a Funding Proposal

The 4 Parts of the SWOT Analysis

These four categories ensure a business recognises what is influencing their strategies, actions or initiatives. With the knowledge of these positive and negative elements it can help businesses be more effective with their communication of which parts of their strategy needs to be highlighted.

In the drafting process of a SWOT analysis, people generally create a table with four columns in order to compare each category. Strengths and weaknesses don’t normally match items in the opportunities and threats columns. The four categories should correlate with each other as they are tied together.

By comparing external threats and internal weaknesses you can highlight serious issues your business may face. Once these are identified you can decide what will be the most appropriate course of action towards eliminating the internal weakness. You could assign resources or lessen the external threat by cancelling the vulnerable area and perhaps come back to it once your business is sufficiently strengthened.

Strengths and Weaknesses

Strength-and-weaknessesThese are specifically internal factors. They apply to the resources and experiences available to you. Examples of areas which are considered internal factors include:

  • Finance related resources – Funding, income and investment opportunities
  • Resources related to physical factors – Your businesses location, facilities and equipment
  • Human resources – Employees, volunteers as well as your target audience
  • Natural resource access – Trademarks, patents and copyrights
  • Processes – Employee programmes, department hierarchy as well as software systems.

Other categories which should be considered are areas such as:

  • Your businesses culture and image
  • Operational effectiveness and potential
  • Roles of key members of staff.

To create a thorough SWOT analysis you need to identify both good and bad factors. You shouldn’t sugar-coat or glaze over critical strengths or weaknesses when listing them. Small business owners have found that by using the SWOT analysis they have re-considered taking on a project that their business couldn’t actually handle.

It is recommended that before trying to take advantage of or control your businesses external factors your need to fully analyse and objectively assess your internal factors.

Related: 5 Ways to Hack a Business Plan

Opportunities and Threats

Business-opportunitiesEvery business, organisation and person is affected and influenced by external factors. These factors may not be directly or even indirectly linked to an opportunity or threat.

It is still important to identify and make a note of each one. External factors are generally factors out of your businesses control like:

  • Trends in the market – New products, technologies or shifts in customer needs
  • Trends in the economy – Local, national as well as international financial trends
  • Funding – Donations, legislature as well as other sources
  • Demographics – Customers age, race, gender and culture
  • Relationships – Partners and suppliers
  • Regulations – Political, environmental and economic.

Recognising external factors can have a profound impact on your business. It can ensure you stay competitive as well as retaining larger advertising and marketing customers.

A SWOT analysis can be used to identify an untouched business opportunity which could provide you with organic, manageable growth. It can also be used to properly analyse your pricing structure which could have been a potential threat to your business.

A SWOT Analysis Template

This is an example of a SWOT analysis with a few options filled in:

Strengths
  • Political support
  • Funding
  • Market experience
  • Strong leadership
Weaknesses
  • Complex project
  • Probably costly
  • Could have an impact on the environment
  • Stretched staff resources
Opportunities
  • Could improve local economy
  • Improvement of safety
  • Boost businesses public image
Threats
  • Constrained by environment
  • Delays
  • Resistance to change

A SWOT analysis is a simple, yet thorough strategy. It enables you to identify the weaknesses and threats of a project as well as the strengths and opportunities that it will make possible. It is an excellent brainstorming tool. But also encourages businesses to scrutinise and implement their strategies in a way which is more balanced.

Use this SWOT analysis template to make the process easier and guide you through process of conducting your SWOT analysis.

Free Resourcesdownload

Download this standard SWOT analysis template that will ensure you don’t leave anything out:

It isn’t the only factor businesses can use in developing an effective business strategy. The SWOT analysis is useful in identifying broad questions which you can use to develop your business plan.

It has been said by some business leaders that it doesn’t go far enough. It won’t identify the key value drivers of your business. It is unproductive and ill-advised to begin planning before knowing your goals and the milestones you will use to measure your progress towards reaching those goals.

It is just one tool you should be using in your strategy toolbox. When it’s used with various other analysis models it will create a framework for strategic thinking which is informative and should be used to guide your decision making.

You Need to Know This:

A SWOT analysis is important, but it’s not enough. You should also run a Market Analysis:

Applying the SWOT Analysis

SWOT-analysisA large part of the success of the SWOT analysis is how you launch your strategy based on the information you received. Listing down and identifying all the strengths weaknesses, opportunities and threats has no value if you can’t implement a strategy.

You have to use the strengths of your business as well as take full advantage of the opportunities that come your way. You need to minimise your businesses weaknesses.

You must develop ways to improve on your businesses weaknesses or eliminate them completely. Combining this with avoiding threats or combating threats will make sure your business will deliver successful results.

A SWOT analysis’s true value is to combine all of these categories together and combine all of the information. This analysis is used to help determine the most favourable circumstances as well as the most severe concerns.

Additional Help for Your SWOT

For further assistance with your SWOT we recommend that you download our SWOT analysis examples.

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Business Plan Research & Preparation

Free Sample Business Plans

Writing a business plan can be a daunting process. Sample business plans can be very helpful in providing a format for you to build your business plan on.

Alison Job

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Here you’ll find free sample business plans for every conceivable type of business. Go through our collection of free sample business plans – we have one for almost every industry.

However, don’t just copy the sample business plan. The purpose of writing a business plan is to actually research and find out more about the business venture that you have in mind. It also allows you to stress test all of your business assumptions to ensure they hold up to real market conditions.

Business Plan Categories

13 Business Plans: Travel and Transport Sector

1 Business Plan: Children’s Education

8 Business Plans: IT

4 Business Plans: Construction & Engineering

13 Business Plans: Consulting

7 Business Plans: Farming

4 Business Plans: Health and Beauty

3 Business Plans: Hospitality

5 Business Plans: Manufacturing

2 Business Plans: Medical

2 Business Plans: Non Profit

2 Business Plans: Online Business

7 Business Plans: Services

2 Business Plans: Pets

13 Business Plans: Professional

2 Business Plans: Media

5 Business Plans: Real Estate

11 Business Plans: Restaurants

3 Business Plans: Retail

10 Business Plans: Sports and Fitness

Are you looking for business ideas? Here are 10 Business Ideas Ready To Launch!

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Business Plan Research & Preparation

SWOT Analysis Examples

It’s not necessary to hire an expert to do a SWOT analysis for your business, you can quite easily do it yourself after checking out a few SWOT analysis examples online.

Alison Job

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Seeing how a SWOT analysis can be implemented in a variety of ways is useful when you are busy with your business plan research and preparation; here are some SWOT analysis examples illustrating how this approach can be tailored to suit pretty much all areas of your business.

Related: Download a Sample Business Plan

1. Sales SWOT Analysis Example

Strengths:

You need to understand what your sales team is good at.

  1. What does your team do better than anyone else?
  2. What benefits do your customers get from working with you?
  3. What does your product or solution offer that your competitors can’t?
  4. Do you have unique processes, products, or services that set you apart?

The aim is to identify your unique selling proposition and capitalise on that.

Weaknesses:

Every sales team has weaknesses. By identifying these you can find ways to strengthen them.

  1. What does the competition see as your biggest weakness?
  2. What do your customers regard as a weakness in your sales methods, product or service?
  3. When you lose a sale, why did it happen?

Related: Maximise Every Sales Opportunity

Opportunities:

Opportunity is all around us, but is easily overlooked.

  1. What do you see as a good opportunity that will strengthen your business?
  2. In what segment of your market are clients consistently making purchases?
  3. What high margin products or services can you expose to a broader market?
  4. Have you noticed a change you can exploit in your market?
  5. Is there a market you can enter with greater profits potential?

Threats:

These can have a huge impact on your business. You have to understand where danger exists in the marketplace.

  1. Does more that 25% of your sales revenue come from less than 10% of your customer base?
  2. What recurring challenges do your sales people face?
  3. Is there a competitor that consistently beats you in the marketplace?
  4. How much bad debt are you carrying
  5. Are sales meeting expectations?

2. Marketing SWOT Analysis Example

You can perform a SWOT analysis as a way of deciding which marketing strategy to implement.

Strengths:

List the main strengths of your business and products or services. This should include not only the areas that your business or products are good at, but also high profit margins, successful current marketing campaigns and similar strengths.

Related: The Ultimate Marketing Tool Library for Entrepreneurs

Weaknesses:

List the main weaknesses of your business and products or services. This should include the areas that you feel your business could improve on.

Opportunities:

List the best opportunities available in your market, or new markets you believe your business can succeed in.

Threats:

List the biggest threats to your business. This could include competitors, government regulations, changes in customer attitudes and other such areas.

3. Business SWOT Analysis Example

An analysis of a company’s internal strengths and weaknesses, compared to its external opportunities and threats, can offer insight into the state – and potential – of the business.

Strengths:

Describe the positive attributes, tangible and intangible, within your organisation.

  • What do you do well?
  • What resources do you have?
  • What advantages do you have over your competition?

Weaknesses:

Identify the weaknesses within your business. These are factors that detract from your ability to obtain or maintain a competitive edge.

Opportunities:

Assess the factors that represent the reason for your business to exist and prosper. What opportunities exist in your market, from which you hope to benefit?

Threats:

What are potential threats to your business? You can benefit by having contingency plans to address them if they should occur.

Related: The Complete Guide To Writing A Marketing Plan

Benefits of SWOT analysis:

  • A framework for identifying and analysing strengths, weaknesses, opportunities and threats
  • A way to analyse a situation and develop suitable strategies
  • A basis for assessing core capabilities and competencies
  • The evidence for change.

Cheat Sheets

Here are a couple of special cheat sheets to help you get along with your business planning quicker:

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