This document discusses business forecasting. It begins by defining business forecasting as predicting future economic conditions based on past and present information. The document then lists the importance of business forecasting for strategic planning, finance, marketing, and operations. Finally, it discusses quantitative and qualitative forecasting methods, including time series analysis and historical trend analysis for quantitative methods. The key goals of business forecasting are to understand future demand and drive better decision making.

1. ENTREPRENEURSHIP
Quarter 2 –Module 4:
Business
Forecasting

2. OBJECTIVES:
In this key move you are expected to:
understand the importance of forecasting in
business
analyze and forecast revenue and cost incurred of a
start-up home-based business
compute for profit of the start-up home-based
business

3. ASSESSMENT
1. What is the positive gain remaining for a business after all costs
and expenses have been deducted from total sales?
A. Mark-up
B. Profit Margin
C. Profit
D. Revenue
2. What is the value of all sales of goods and services recognized by a
company in a period?
A. Mark-up
B. Profit Margin
C. Profit
D. Revenue

4. 3. What is an amount that is added on top of the total product cost
price?
A. Mark-up
B. Profit Margin
C. Profit
D. Revenue
4. What helps establish how well a certain product or service
performs, or how much money it makes for the company?
A. Mark-up
B. Profit Margin
C. Profit
D. Revenue

5. 5. What is the process of estimating the future demand of a
product in terms of a unit or monetary value?
A. Business Plan
B. Qualitative forecasting
C. Demand forecasting
D. Quantitative Forecasting
6. What is an act of predicting the future economic conditions
on the basis of past and present information?
A. Business Forecasting
B. Qualitative forecasting
C. Demand forecasting
D. Quantitative Forecasting

6. 7. What cost in cost accounting estimated in advance of
production or construction?
A. Expected cost
B. Profit
C. Mark-up
D. Profit Margin
8. What describes the business wants to achieve, based on a
set of assumptions?
A. Business Plan
B. Profit
C. Demand
D. Revenue

7. 9. What is an analysis and extrapolation of this historical data to provide an
indication of future performance or demand?
A. Historical Trend Analysis
B. Profit Analysis
C. Loss Analysis
D. Time Series Analysis
10. What is defined as the management of money and includes activities
such as investing, borrowing, lending, budgeting, saving, and forecasting?
A. Accounting
B. Human Resource
C. Finance
D. Marketing

8. Understanding the key terms:
1. Strategic Planning is the process of documenting and
establishing a direction of your small business—by assessing both
where you are and where you’re going. The top three reasons
strategy implementation fails: Poor Communication, Lack of
Leadership, Using wrong measures
2. Decision-making is choosing between two possible course of
action and it involves choosing between possible solutions to a
problem.
3. Finance is defined as the management of money and includes
activities such as investing, borrowing, lending, budgeting, saving,
and forecasting. 3

9. 4. Accounting is how your business records, organizes, and
understands its financial information.
5.Expected cost is the cost in cost accounting estimated in
advance of production or construction.
6.Revenue is the value of all sales of goods and services recognized
by a company in a period.
7.Profit is the positive gain remaining for a business after all costs
and expenses have been deducted from total sales.
8.Cost-effective is something that is a good value, where the
benefits and usage are worth at least what is paid for them.
9.Repayment plan is a way to pay back a loan over an extended
period of time, generally by making fixed monthly payments.
3

10. 10.Cash flow statement (CFS) measures how well a company
manages its cash position, meaning how well the company
generates cash to pay its debt obligations and fund its operating
expenses.
What exactly is business forecasting?
Business Forecasting is the process of using analytics, data,
insights, and experience to make predictions and respond to
various business needs. The insight gained by Business
Forecasting enables companies to automate and optimize their
business processes.
Business forecasting is an act of predicting the future economic
conditions on the basis of past and present information. It refers to
the technique of taking a prospective view of things likely to shape
3

11. the turn of things in foreseeable future. As future is always
uncertain, there is a need of organize system of forecasting in a
business.
Goal of business forecasting:
-go beyond knowing what has happened and provide the best
assessment of what will happen in the future to drive better
decision making.
Many people think of a Business Forecast as how many of
something we will sell next week. That is part of it but Business
Forecasting can encompass anything that identifies the likelihood
of a future outcome, provides comparative information using
analytics, or drives data-driven business decision.
3

12. Importance of Business Forecasting
Business Forecasting can be used for:
1.Strategic planning and decision-making (long-term planning)
2.Finance and accounting (budgets and cost controls)
3.Marketing (consumer behavior, life cycle management, pricing)
4.Operations and supply chain (resource planning, production,
logistics, inventory)
Five(5) Fundamentals of Business Forecasting
1.Forecasting is essential to sustainable success
To run a successful business, you need to match demand and
supply. In order to understand and prepare for future demand,
businesses must create forecasts.

13. Demand forecasting – the process of estimating the future demand
of a product in terms of a unit or monetary value – is a
fundamental part of supply chain management.
If you run a seasonal business, understanding the peaks and toughs
of previous demand and incorporating them into your current
business forecast allows your business to better manage its
inventory. With an informed forecast, you can assess what
amounts of stock should be maintained, what raw materials are
likely to be required, and also what workforce you’ll need to fulfill
orders.
Forecasting helps you to fully understand expected costs, revenue
and profits, which in turn impacts process management across the
entire business.

14. In terms of workforce management, it has a significant impact on
staff recruitment and HR activity. And business forecasting also
informs product strategy. Analyzing and predicting potential future
growth in demand, cash flow, sales and profits helps identify the
right time for new product development and launch.
It also helps a business to adapt its overall cash flow strategy in line
with predicted outcomes and growth aspirations. Understanding
the most likely outcome for sales, revenues and profits helps
ensure that any borrowing or repayment plans are scheduled for
optimum cost-effectiveness, maximum opportunism and minimum
risk.
2.Your business forecast should mirror your business plan
Business forecasting is concerned with understanding what could
realistically happen based upon your historical performance.

15. Business plans include the growth aspirations of the business and
are arranged around a set of goals. They describe what the business
wants to achieve, based on a set of assumptions. They provide the
vision for the business, and shape all decisions moving forwards.
Having a business plan with clear targets is key to developing a
relevant business forecast. Your business plan should inform your
business forecast methods, assumptions and relevant data points.
Your forecast findings should then help to inform your business
plans.
Therefore, it is crucial that business forecasts are continually
reviewed and reassessed to maintain accuracy and alignment to
your goals. Continual analysis of business performance against
forecasts and regular reviewing/refreshing ensures that the
forecast remains current and a useful management tool.

16. This helps to inform a robust and relevant business forecast, and in
turn, a sustainable business plan. In short, you must keep your
forecast methods and assumptions as fluid as possible, and closely
linked to any alterations in your business plan.
3.Business forecasting methods and processes
The basic process of forecasting is essentially the same, whatever
the methods employed:
A problem is selected – e.g. ‘what will our sales look like in
October next year?’
Relevant data points are chosen – what variables and how to
collect them?

17. Assumptions are made to simplify the process and cut down on
time and data
A forecasting model is chosen that is suitable for the above points
The data is analyzed and the forecast is drawn up
The forecast is verified through comparison to actual events and
performance
There are two main methods of forecasting: qualitative and
quantitative.
1.Quantitative forecasting is concerned with data.
Businesses that have been established use primarily historical
data of their own performance, combined with market and other
macroeconomic factors.

18. For existing businesses, the most common business approach in
this method includes:
1.Time Series Analysis is the analysis and extrapolation of this
historical
data to provide an indication of future performance or
demand. It is the most common type of business forecasting
and forms a large part of many business’ approach. Due to its
reflective nature, this is only generally useful for existing
products and services.
2.Historical trend analysis looks for stable, upward or downward
trends and patterns in historical data, including industry
changes, and technological, cultural, and political
developments.

19. With these methods, the more historical data there is, the better.
This makes them less useful for businesses and markets that are
relatively newly established.
If your business is new, or has less or lack of historical data to work
with then use either the following:
naive approach to data – that assumes the upcoming period
demand will be the same as current – can be more useful.
Let say for example your cupcake sales in the month of December
2020 to January 2021 holiday season will be also your target sales
for December 2021 to January 2022 holiday season.

20. moving averages’ approach where the forecaster averages out the
last 3 months then uses that as the forecast for the next month.
This can be particularly useful if there is very little trend data to
work with. Say for example having sales of cupcake as follows:
January February March Total Sales Average Sales for
3 months(Total
Sales/3)
P10,000.00 15,000.00 5,000.00 30,000.00 P10,000.00
2. Qualitative business forecasting models are generally used for
short-term predictions, or for when data is scarce – for example,
when a new product is first introduced to market.

21. They consist of the following approaches:
Expert opinions – what do experienced executives think will
happen
Delphi method – conducting surveys, interviews, and phone calls to
a panel of experts (outside the business) from multiple areas and
try to reach a consensus.
Talking to your sales force and asking them to predict sales based
on performance and other variables
Market surveys – Asking customers their opinions, preferences, etc.
to gauge demand.
Qualitative business forecasting can come up against limitations due
to its reliance on subjective opinion rather than concrete,

22. measurable data points and trends. For example, salespeople are
likely to overestimate how much they will sell. Problems can also
arise if there is a lack of consensus among the experts polled.
The reason for some people reject business forecasting and deemed it
unnecessary, waste of time, money and energy even of the many
advantages is the fact that despite all precautions, an element of
error is bound to creep in the forecasts and we cannot eliminate
guesswork in the forecasts. It is also felt that forecasting is influenced
by the pessimistic or optimistic attitude of the forecaster.
It may not be possible to make forecasts with a pin-point accuracy
but it still cannot undermine the importance of business forecasting.

23. The management should first make use of statistical and
econometric models in making forecasts and then apply collective
experience, skills and objective judgement in evaluating the
forecasts.
Further, the forecasts should be constantly monitored and revised
with the changed circumstances.
There will always be limitations with forecasting due to the nature of
forecasting, the goal is not to be able to create a 100% accurate
prediction of future performance and events. It’s simply to formulate
the best guess or estimate based upon the available relevant
information.
Aiming to paint a realistic and informed picture of how the next

24. week, month, year, and even decade will play out, however, comes
up against inherent limitations.
1) Data quality
Due to the historical nature of the data used in qualitative
forecasting methods, it is always old. If your data is not used
regularly, the quality of it can decay. Errors go undetected, and
inconsistencies go unnoticed. It must be used or checked regularly
to ensure the data is robust enough to provide useable analysis.
Solid, fresh data with more assumptions applied is better than old,
rarely used data.
2.Bias
Forecasts, as with any predictions, are often biased to some degree.
This is difficult to eliminate as the set of assumptions (which data
points or factors to use, and how to weight them etc.) will likely
always add bias to the results.

25. 3.Methodology
Forecasting is, by it’s nature, never totally accurate, and always
evolving. If your forecast does prove to be correct (or highly
accurate), it’s important not to assume that this was due to your
brilliant forecasting methodologies and sound logic. A correct
forecast does not prove your forecast method is correct – it could
have been down to sheer good luck. Always check and reassess
your methods.
Robust, informed forecasting is always an iterative process. The
more iterations and the better it is attached to real costs and
coherent assumptions – the better the forecast will be.
4. Unexpected events
Forecasting generally assumes overall economic stability and no
significant changes in the industry or market. However, there is no

26. guarantee that conditions in the past will carry over into the
future. This makes historical data and trend analysis limited as a
standalone method for future predictions.
External unexpected events (think of the subprime mortgage
meltdown) can instantly undermine assumptions and render a
forecast irrelevant. It is impossible to factor in completely
unexpected events. Therefore, there needs to be flexibility built
into any business forecast.
4.Keep it simple where possible
Constructed forecast should be simple to understand and provide
information relevant to the strategy of the business. They should
also be easy to adjust. The simpler the methodology used, the easier

27. it is to understand, analyze, and figure out why, should anything go
wrong. If a method is too complex, it can obscure key assumptions
and reasons for failure.
When it comes to cash flow forecasting, Rodney Schwartz, CEO at
ClearlySo advises: “The simpler the better – one of the best is just a
projection of the bank balance”.
Finding a simple, flexible cash flow solution is key to maintaining the
agility and financial robustness essential to sustainable growth.
Unexpected events – either positive or negative – can be managed
with more confidence, knowing that your working capital fund is
backed up by an easy to access, cost effective and flexible finance
facility.

28. Scientific business forecasting involves:
(i)Analysis of the past economic conditions and
(ii)Analysis of the present economic conditions; so as to predict the future
course of events accurately.
In this regard, business forecasting refers to the analysis of the past and
present economic conditions with the object of drawing inferences about the
future business conditions. In the words of Allen, “Forecasting is a
systematic attempt to probe the future by inference from known facts. The
purpose is to provide management with information on which it can base
planning decisions.

29. 1.Developing the Basis:
The first step involved in forecasting is developing the basis of
systematic investigation of economic situation, position of
industry and products. The future estimates of sales and general
business operations had to be based on the results of such
investigation. The general economic forecast marks as the
primary step in the forecasting process.
Do you have an existing competitor in the neighborhood?
Is your price competitive and fits your target market?
2.Estimating Future Business Operations:
The second step involves the estimation of conditions and course
of future events within the industry. Base on the information/data

30. collected through investigation, future business operations are
estimated. The quantitative estimates for future scale of
operations are made base on certain assumptions.
What is the demand of your product? Is it still in demand 2-3
years from? Can you maintain the product quality and
competitiveness considering the location?
3.Regulating Forecasts:
The forecasts are compared with actual results to determine any
deviations. The reasons for his variations are ascertained so that
corrective action is taken in future.
Is there any deviation between your forecast and the actual
result? How big is the difference?

31. 4.Reviewing the Forecasting Process:
Once the deviations in forecast and actual performance are found
the improvements can be made in the process of forecasting. The
refining of the forecasting process will improve the forecast in the
future.
Did you identify significant data? Are you still into further data
collection?
Sources of data use in Business Forecasting:
Collection of data is a first step in any statistical investigation. It
is the basis for any analysis and interpretations. Before collection
of data, many questions shall occupy the mind of the manager.
The manager must be able to answer these questions before task
of collection is started.

32. These questions are:
1)Why to collect data?
2)What kind of data to be collected?
3)When It is to be collected?
4)Where from it should be collected?
5)Who will collect it?
6)How it shall be collected?
Planning for data collection refers to thinking or preparing
before doing the actual task of data collection. The purpose or
object of data collection, the scope of the data, the unit of data
collection, the technique and sources of data are the important
consideration in planning the data collection. Data may be
collected from primary or secondary sources depending upon the
time, resources, and purpose of the investigation.

33. Primary Sources:
It is a first-hand data collected personally by the investigator. It is
costly and time consuming. Primary data is collected if secondary
data is not available. It is collected through personal interviews,
questionnaires or observations.
Secondary Sources:
These sources of data refer to already published data or data
collected by other agencies. It is a secondhand data. Here task is
more of a collection and compilation of data. Lot of care and
caution is necessary before using the secondary data. Such data
is cheaper, quick to access and easily available.
The sources of secondary data are:
Official reports of the government.
Financial institutions etc.

34. Annual reports of the company
Journals, Newspapers, Magazines etc.
Forecasting is important so that an entrepreneur can foresee the
possibility and can make adjustment before business starts to
operate. Thus, an entrepreneur must identify a sustainable and
realistic profit margin to sustain the business operations.
How to Solve Profit with Cost & Revenue?
To determine if a business is successful, you must look at costs,
revenues and profits.Some may think that revenues and profits are
the same thing, but they are not.Companies can have very high
sales numbers, but this does not automatically translate into
profits. As Bean Ninjas explained, costs and revenues must be
balanced effectively by a business in order to be successful.

35. sales revenue = sales price × number of sold units (less
deductions for discounts and returned item)
What is Revenue?
If a business owner does not understand the difference between
revenue and profit, they may not realize if their company is in
trouble. Normal business activities are intended to generate income.
This income is also called sales revenue, and it can be calculated as
follows:
This equation reveals a company’s gross revenue for a given time
period. Once expenses like overhead costs are subtracted, you are left
with the company’s net sales revenue. When the net sales revenue
exceeds the expenses during a given time period, the resulting number
represents the company’s profit.

36. The cost of revenue is another way of categorizing operating costs. This
includes all of the expenses associated with manufacturing and
distributing products and services to end users. They can be direct or
indirect, and can include buying materials, labor, production, marketing
and salaries.
Defining a Company’s Profits

37. Though this profit equation is simple, making a respectable profit
can be difficult; otherwise, companies would never go out of
business.
Understanding the concepts of profit markups and margins are
essential for business owners who want to succeed. A markup is
the amount that is added on top of the total product cost price.
Profit margins help establish how well a certain product or service
performs, or how much money it makes for the company. The
percentage figure gauges how many cents the business makes for
every peso in sales, while accounting for the costs involved.

38. In essence, higher profit margins indicate that a company is doing
better than when their profit margins are lower.
Calculating Profit Margins
Profit margins can be calculated using a company’s gross, net or
operating profit. Most reflect net profit margins, which pinpoint the
percentage of sales that are actual profit.
As Xero Accounting explains, here is the basic formula to use:

40. Let’s start defining your Net Sales Revenue!
Instructions: Write your answers clearly in a separate sheet.
Base on your start-up home business identify the following data
listed below using the sales revenue, profit and net income
formula given above. Choose one product only if you offered
many.
1.Name of a Product
2.Itemize and total cost of ingredients/materials
3.Product Sale Price
4.Gross sales forecast
5.Compute the sales revenue

41. ASSESSMENT
1. What is the cost in cost accounting estimated in advance
of production or construction?
A. Expected cost
B. Profit
C. Mark-up
D. Profit Margin
2. What describes what the business wants to achieve, based
on a set of assumptions?
A. Business Plan
B. Profit
C. Demand
D. Revenue

42. 3. What is an analysis and extrapolation of this historical data
to provide an indication of future performance or demand?
A.Historical Trend Analysis
B.Profit Analysis
C.Loss Analysis
D.Time Series Analysis
4. What is defined as the management of money and includes
activities such as investing, borrowing, lending, budgeting,
saving, and forecasting?
A.Accounting
B.Human Resource
C.Finance
D.Marketing

43. 5. What is the positive gain remaining for a business after all
costs and expenses have been deducted from total sales?
A. Mark-up
B. Profit
C. Profit Margin
D. Revenue
6. What is the value of all sales of goods and services
recognized by a company in a period?
A. Mark-up
B. Profit
C. Profit Margin
D. Revenue

44. 7. What is an amount that is added on top of the total
product cost price?
A. Mark-up
B. Profit
C. Profit Margin
D. Revenue
8. What helps establish how well a certain product or service
performs, or how much money it makes for the company?
A. Mark-up
B. Profit
C. Profit Margin
D. Revenue

45. 9. What is the process of estimating the future demand of a product
in terms of a unit or monetary value – is a fundamental part of
supply chain management?
A. Business Plan
B. Qualitative forecasting
C. Demand forecasting
D. Quantitative Forecasting
10. What is an act of predicting the future economic conditions on
the basis of past and present information?
A. Business Forecasting
B. Qualitative forecasting
C. Demand forecasting
D. Quantitative Forecasting

46. 11. What are generally used for short-term predictions, or for
when data is scarce?
A. Business Forecasting
B. Qualitative forecasting
C. Demand Forecasting
D. Quantitative forecasting
12. What is the process of using analytics, data, insights,
and experience to make predictions and respond to
various business needs?
A. Business Forecasting
B. Qualitative forecasting
C. Demand forecasting
D. Quantitative Forecasting

47. 13. What is the process of documenting and establishing a direction
of your small business—by assessing both where you are and
where you’re going?
A. Business Forecasting
B. Quantitative Forecasting
C. Decision-making
D. Strategic Planning
14. What is meant of choosing between two possible course of action
and it involves choosing between possible solutions to a
problem?
A. Business Forecasting
B. Quantitative Forecasting
C. Decision-making
D. Strategic Planning

48. 15. What is something that is a good value, where the
benefits and usage are worth at least what is paid for them?
A. Cost-effective
B. Mark-up
C. Expected Cost
D. Revenue