Since the beginning of time the human species has been adapting to the forces of the external environment. Now more than ever, we have to change our ways of living and more importantly the way we conduct business. Our market is ever-changing and we have to stay abreast to the new and challenging situations that have been bestowed upon us. The mass majority of people could not fathom gas prices reaching $4.00 and those days may resurface. Once again, we must respond to the changes in our environment. Businesses are still plentiful, but business owners have to plan accordingly to stay creative in today’s market. The aspect of business planning will always be a thoughtout, meticulous process and for aspiring business owners this is an obstacle that has to be overcome. Along with a thorough business plan, new owners have to choose a method of formulating a forecast for their new business. There are several factors that can affect the budgeting and forecasting of a business. For instance, market trends, competition and economic changes all have a significant impact on a business and it forecast.
When examining the three areas that influence the preparation of a forecast, market trends may be the most difficult to predict. Demand is based the preferences and necessities of the consumer and may be affected by trends. For example, milk is a necessity and presents a sense of stability in its market. Most of us drink milk everyday and we need it in order to survive. No matter what the price of milk may be, we will still purchase it because of its use. Thus, the forecast for this item can be made for several years to come. However, when we compare items associated with the technological industry, this will not hold to be true. The popular MP3 player was introduced into the market in 1999. These devices went through an introductory stage and leveled off to a maturity stage, which is the normal cycle for product when it is invented and placed into a market. One can only imagine the price of the MP3 when it first appeared on the shelves and sales for electronic stores probably experienced dramatic increases. When formulating a forecast for a store that sells electronic merchandise, these type of circumstances have to be taken into consideration. We can assume that forecasted sales will be higher for a store during the introductory period of a product versus the maturity period, but this is also very dependent on consumer trends.
New inventions, like the MP3, IPOD and the digital camera created new opportunities for the expansion of many large corporations. In additional to the large corporations, opportunities also surfaced for the small business owners. However, there is a down side. When we have several businesses in a confine area, the market can become saturated with services and products. The end result can be drastic price adjustments in order to stay completive and this is another factor that can determine the budget and forecast of a business. Many business received their information from primary research done throughout a particular area. Market research and historical information are two common methodologies used by businesses to estimate forecasts.
The last and possibly most influential factor that can affect the preparation of a forecast is our economy. The state of our economy affects everything we do. We cannot effectively build a forecast if we are not aware of what is going on in the economy. Have you ever heard of the saying “Everything is Everything.” Well, translate this saying from an economical standpoint and let’s say that, “Everything affects Everything.” Let’s take into consideration the price of gas. The price of gas can play a pivotal role in one’s amount of disposable income. The same disposal income that could have been used to buy some new clothing if gas wasn’t $ 4.00. A ripple effect takes place when the retail store sales dwindle (due to clothing purchases) and amount of payroll decreases. A store manager will have to send employees home to make payroll and the “ripple effect” progresses on. Conversely, the same store doesn’t make its numbers and new comers in the areas may be basing their forecasts off of existing businesses. Potential owners and investors have to base their numbers off the most recent activity and if these figures do not meet their expectations then they may not take the risk of starting a new business in a particular area. We now see how detrimental the economy can be to the success and forecast of a business.
As entrepreneurs will have to stay attuned and continue to educate ourselves in the areas forecasts and finance. These are two important components of our businesses. If we choose to overlook these areas, we not only risk incurring more debt and bankruptcy, but we also risk the prosperity of our community.
Adelman & Marks (2007), Entrepeneurial Finance. Retrieved June 1, 2008, from http://classroom.follettebooks.com
Bellis, M. The History of MP3. Retrieved June1, 2008 from http://inventors.about.com/od/mstartinventions/a/MPThree.htm