Gullermo

Sales Forecasting is a method used to predict future sales of a product over a specific period based on past performances, competition, consumer spending patterns, market trends and economic changes. It is instrumental in the prediction of the company’s dollar sales and planning for future growth. Sales Forecasting can assist Guillermo Furniture to develop a budget, allocate resources, monitor competition and the product environment. The first step when completing an accurate sales forecast for Guillermo is conducting extensive research of the consumers’ buying power and economic situation in Sonora, New Mexico. Sales Forecasting involves not only the collection of data about the market, but also the application of a manager’s judgment and interpretation of the data collected to make decisions that can have a positive or negative impact on the business, according to Gordon Bolt. Guillermo can use Sales Forecasting to estimate the expected units of furniture to be sold and to determine what the costs of resources (materials, labor, equipment and capital) will be. Forecasting can identify consumers buying patterns, allowing Guillermo to offer discounts and promotions in an effort to increase sales. Additional workers can be employed during peak selling periods and laid off in slow periods. Financing for equipment and technologies will also be needed to expand the business. The use of sales forecasting can demonstrate to lenders how much revenue the business can expect to make based on past performances, thereby enhancing the chances of lender approval for loans. Sale Forecasting carries risks, Guillermo can over-forecast where the company does not sell as much as it predicted or under-forecast where the company sells more than it predicted. In a manufacturing environment such as the furniture store, the forecast will be used to determine how much raw materials to purchase and how much products can be produced. When sales are under-forecast Guillermo may not produce enough to satisfy demand. This can lead to customers purchasing from competitors. During peak selling periods where sales are under-forecast the company may not have enough employees to meet demands, the customer service satisfactory level will suffer and employees can burnout causing a high turnover. Guillermo distributes capital for production and will need to borrow capital based on the Sales Forecast. When sales are under-forecast, the company may not have enough capital to cover expenditures for additional business. When sales are over-forecast raw materials purchased in excess and excess furniture will be produced creating a surplus. The excess raw materials costs could be used for something else and the excess furniture uses space or increase inventory. Over-forecasting leads to under utilization of human resources (employees) and Guillermo will need to downsize, customers will feel that the company is not doing great and employees may feel that their jobs are not secure. Over-forecasting leads to the company purchasing more than what is needed to produce hence wasting capital that could have been used in other areas of the business and creating debt. Consistent over-forecasting can decrease lender confidence, which in turn reduces available capital or high interest rates. A budget is a great performance tool for a company, not only to evaluate the company as a whole but also to evaluate employees. Budgeted performance goals generally provide a better basis for evaluating actual results. The major drawback of relying only on historical results for judging current performance is that inefficiencies are concealed in the past performance. It is essential for a company to create a performance tool that deters unethical behavior in the organization and cynicism about the budget process. Many upper level managers are tampering with actual production figures in an attempt to make their companies appear more profitable than they really are. The recent profit margin of Guillermo’s operations is not encouraging. Actual labor and production costs were higher than budgeted. Neither high end or mid grade furniture sales met expectations, causing revenue to be less than the budget anticipated. Guillermo Furniture Company is not an attractive investment at this time. The question then arises, should Guillermo resort to unethical behavior such as cooking the books in an effort to appear more lucrative to investors' “Cooking the books” a term associated with false accounting reporting, has been the downfall of many organizations.