Estimation of Revenue
Revenue estimation involves calculating the amount of money our business is likely to earn. We can work this out by forecasting your business growth rate, the number of customers we have (and will have) and the prices of our products and services.
Revenue estimation is usually calculated over a fixed accounting period, such as a quarter or even a financial year.
A new business should prepare revenue projections every three months, but after a couple of years we’ll have a better idea of our annual business growth rate and our revenue estimation will be more accurate.
How can revenue estimation help protect our business?
Revenue estimation is particularly important for protecting your earnings through business interruption insurance, which we call “Back in Business”. This type of insurance can protect your revenue against an unpredictable event that may stop your revenue completely, such as a fire, storm or cyclone.
It can also provide financial relief for some events that impact your revenue, such as a nearby shop burning down, which means your customers can’t get to your premises for a few weeks, or where parts of your city are severely damaged by a storm and you can’t deliver your services.
When disaster strikes and halts your revenue, business expenses such as wages, rent and loan repayments must still be paid.
The ability to estimate future revenue and net income of a company is important in the budgeting process. But because of the diversity of influences on company income and expenses, it can be challenging to develop accurate future-period estimates. Established small businesses can look to previous financial statements and trends to inform their estimates, adding at least a statistical reliability to the process. Using previous financials can allow you to project past and current trends into the future, and it gives you a starting point for estimating actual revenue and net income figures.