SENIOR

Entrepreneurship HIGH
SCHOOL

Module
FORECAST THE REVENUES OF
THE BUSINESS 7
Quarter 2

Entrepreneurship
Quarter 2 – Module 7: Forecast the revenues of the business
First Edition, 2020

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 SENIOR
Entrepreneurship HIGH
SCHOOL

Module

7
Quarter 2

FORECAST THE
REVENUES OF THE
BUSINESS
Introductory Message

For the facilitator:

Welcome to the Entrepreneurship with Grade 12 Self-Learning Module on

Forecast the revenues of the business.
This Self-Learning Module was collaboratively designed, developed and
reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.

This learning material hopes to engage the learners in guided and

independent learning activities at their own pace and time. Further, this also aims
to help learners acquire the needed 21st century skills especially the 5 Cs, namely:
Communication, Collaboration, Creativity, Critical Thinking, and Character while
taking into consideration their needs and circumstances.

In addition to the material in the main text, you will also see this box in the
body of the module:

Notes to the Teacher

This contains helpful tips or strategies
that will help you in guiding the learners.

As a facilitator, you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them
to manage their own learning. Moreover, you are expected to encourage and assist
the learners as they do the tasks included in the module.
 For the Learner:

Welcome to the Entrepreneurship Self-Learning Module on Forecast the

revenues of the business!

This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an
active learner.

This module has the following parts and corresponding icons:

Expectations – These point to the set of knowledge and skills

that you will learn after completing the module.

Pretest - This measures your prior knowledge about the lesson

at hand.

Recap - This part of the module provides a review of concepts

and skills that you already know about a previous lesson.

Lesson - This section discusses the topic in the module.

Activities – These are sets of activities that you need to

perform.

Wrap-Up - This section summarizes the concepts and

application of the lesson.

Valuing - This part integrates a desirable moral value in the

lesson.

Posttest - This measures how much you have learned from the
entire module.
 EXPECTATIONS

LEARNING COMPETENCIES: Forecast the revenues of the business.

LEARNING OBJECTIVES: After going through this module, you are expected to:
1. identify the importance of forecasting in a business;
2. forecast the revenues of the business and cost to be
incurred; and
3. compute the profits of a business.

PRETEST

Multiple Choice: Encircle the correct answer from the given choices below.

1. Calculating or predicting some future event or condition usually as a result of

study and analysis of available pertinent data is called ____________.
A. Growth B. Accounting C. Forecasting D. Survey

2. It is often referred to as sales and the income received from normal business
operations and other business activities.
A. Revenue B. Expenses C. Cost D. Credit Memo

3. __________is the monetary value that has been spent by a company to produce
something.
A. Sales B. Cost C. Growth D. Credit Memo

4. Money spent or cost incurred in an organization's efforts to generate revenue

and represent the cost of doing business is called _____________.

A. Expenses B. Growth C. Profit D. Credit Memo

5. The following sentences are the importance of forecasting in business except

for?
A. Forecasting allows businesses to better plan their next steps.
B. Forecasting allows businesses to create accurate budgets.
C. Forecasting cannot help you to be aware of your business is going to
grow – or if it’s going to fail.
D. Forecasting allows you to see your future sales projections.
 RECAP
Developing a business model is a crucial part of a business. A business model
describes how the business will generate revenue and support financial
projection/s. It will be a great help in defining the importance of business in
gaining profits and sales. It is also used to describe and classify businesses,
especially an entrepreneurial settings, but they are also used by managers inside
companies to explore possibilities for future development. For our recap on the
nine (9) components of a business model, answer the crossword puzzle below.
Write the correct answers based on the clues given.

3
_

5
_
6

7
_ _
8
_
_

9
_
DOWN: ACROSS:

1. describes how a company communicates 3. is an innovation, service, or feature

with and reaches its Customer Segments to intended to make a company or product
deliver its Value Proposition. It could be attractive to customers. It is based on a review
physical channels, such as a store needed to and analysis of the benefits, costs, and value
sell clothes or a local market, or they could be that an organization can deliver to its
virtual channels, such as an e-commerce customer.
website selling clothing online.
5. It is the most important activity in executing
2. define the groups of people or organizations a company’s value proposition. These include
you aim to reach or serve. Every company your product distribution, research, and
needs profitable customers to survive. development, strategy, etc. It is the most
important activity in executing a company’s
4. It involves asset sale, subscription fees, value proposition.
leasing, licensing, advertising, etc.
8. describes the type of relationship a company
6. are the external companies or suppliers that establishes with its specific customer
you would need to perform your key activities segments. It is driven by customer acquisition,
and deliver value to the customers. customer retention, and boosting sales.
7. defines all the costs and expenses that your 9. describes the most important assets
company will incur while operating your required to make a business model work.
business model. This final step in this process These can be things like your office, hosting
is important because it will help your team requirements, human resources, finances,
decide whether to pivot or proceed. transportation, electricity, etc.

LESSON

BLOCKBUSTER (1985 – 2010)

 Home movie and video game rental services giant, Blockbuster Video, was
founded in 1985 and arguably one of the most iconic brands in the video rental
space. At its peak in 2004, Blockbuster employed 84,300 people worldwide and had
9,094 stores. Unable to transition towards a digital model, Blockbuster filed for
bankruptcy in 2010.

In 2000, Netflix approached Blockbuster with an offer to sell their company to

Blockbuster for US$50 million. The Blockbuster CEO, was not interested in the offer
because he thought it was a "very small niche business" and it was losing money at the
time. As of July 2017, Netflix had 103.95 million subscribers worldwide and a revenue
of US$8.8bn. (excerpt from https://www.collectivecampus.io/blog/10-companies-that-
were-too-slow-to-respond-to-change)

What do you think is the problem with the decision of the CEO?

When starting a business, financial forecasting may seem overwhelming.

Creating revenue and growth forecasts can be one of the trickiest parts of business
planning and fundraising for startup entrepreneurs. These numbers are likely to
change dramatically once you get going, but they are still needed and expected.

Forecasting is calculating or predicting future events that usually comes

from the result of a study and analysis of available pertinent data. It helps us to
anticipate the future happening or condition. It takes a lot of time but the more
important thing is that proper financial forecasts will help us to develop operational
and staffing plans that will make help the business a success.

Revenue is the total income produced by a given source, a property expected

to yield a large annual revenue, or the gross income returned by an investment. In
governmental terms, it is the source of income (taxes) that a political unit collects
and receives into the treasury for public use.

Growth is a stage in the process of growing; it is a result of growth,

producing especially by growing. It anticipates progressive growth especially in
capital value or income. Some investors prefer growth to immediate income.

Building Financial Forecasts:

1. Start with expenses, not revenues. It is much easier to forecast expenses than
revenues. Below are the most common categories of expenses:

a. Fixed costs/Overhead
 • Rent
• Utility Bills
• Phone Bills/Communication costs
• Accounting/Bookkeeping
• Legal/Insurance/Licensing fees
• Postage
• Technology
• Advertising and Marketing
• Salaries

b. Variable Costs
• Costs of Goods Sold
• Materials and supplies
• Packaging

c. Direct Labor Costs

• Customer Service
• Direct Sales
• Direct Marketing

Here are some rules of thumb you should follow when forecasting expenses:

• Double your estimates for advertising and marketing costs since they always
escalate beyond expectations.
• Triple your estimates for legal, insurance, and licensing fees since they are
very hard to predict without experience and usually exceed expectations.
• Keep track of direct sales and customer service time as a direct labor
expense even if you're doing these activities yourself during the startup stage
because you'll want to forecast this expense when you have more clients.

2. Forecast revenues.

For example, your conservative revenue projections might have the following
assumptions:

• low price point

• two marketing channels
 • no sales staff
• one new product or service introduced each year for the first three years

Your aggressive case might have the following assumptions:

• the low price point for the base product, higher price for a premium product
• three to four marketing channels managed by you and a marketing manager
• two salespeople paid on commission
• one new product or service introduced in the first year, five more products or
services introduced for each segment of the market in years two and three

By unleashing the power of thinking big and creating a set of ambitious forecasts,
you're more likely to generate the breakthrough ideas that will grow your business.

3. Check the key ratios to make sure your projections are sound. After making
aggressive revenue forecasts, it is easy to forget about expenses. Many
entrepreneurs will optimistically focus on reaching revenue goals and assume the
expenses can be adjusted to accommodate reality if revenue doesn't materialize.
The best way to reconcile revenue and expense projections is by a series of reality
checks for key ratios.

Here are a few ratios that should help guide your thinking:

Gross margin. It is the total direct cost to total revenue during a given quarter or
year. This is one of the areas in which aggressive assumptions become unrealistic.
This assumption is to make a gross margin increase from 10 to 50 percent. If
customer service and direct sales expenses are high now, then it may be high in the
future.

Operating profit margin. What is the ratio of total operating costs--direct costs
and overhead, excluding financing costs--to total revenue during a given quarter or
given year? You should expect a positive movement with this ratio. As revenues
grow, overhead costs should represent a small proportion of total costs and your
operating profit margin should improve. The mistake that many entrepreneurs
make is they forecast this break-even point too early and assume they won't need
much financing to reach this point.
 Total headcount per client. If you are a one-man-army entrepreneur who plans to
grow the business on your own, pay special attention to this ratio. Divide the
number of employees at your company--just one if you're a jack-of-all-trades--by
the total number of clients you have. Ask yourself if you'll want to be managing
that many accounts in five years when the business has grown. If not, you'll need
to revisit your assumptions about revenue or payroll expenses or both.

Building an accurate set of growth projections for your startup will take
time. But it will help you a lot in the future. Revenue forecasts are useful for start-
ups and existing businesses. Here is how to prepare it:

1. Decide on a timeline – decide on how far you want to look into the
future. This will be determined by creating a report.

2. Forecast your expenses – predicting expenses is the easiest part of a

revenue forecast with a past expense records of an existing business and
researched forecast.

Two types of Expenses:

1. Fixed Costs – expenses that remain the same every month. Examples
are rent, fixed salaries, utilities, insurance, phone bills, internet and
technology costs, postage, advertising and marketing expenses, legal,
accounting, and bookkeeping fees.

2. Variable Costs – expenses that may tend to change every month,

depending on your sales volumes. Examples are the cost of goods sold,
packaging costs, cost of labor, marketing, and customer service costs as they
directly relate to the sale of the product.

Forecast the Sales

The thought of forecasting sales intimidates a lot of people, but in actuality, it’s
simply an act of looking at some raw data and making some logical assumptions
from it.
• Your customers: Identify your customer base and determine which ones you’ll
include in the forecast.
• Your service area: Do you have expansion plans? If so, include your current
geographical area as well as the area you plan to include in the future.
• Market conditions: What is the state of the market? Will it remain steady or
increase?
• Business position: Consider the position of your business within your industry,
and factor in your growth expectations.
• Seasonal adjustments: Many businesses have increased and decreased sales in a
cyclical seasonal cycle. If your business falls into that pattern, consider this.
Sources of Information on Forecasting:
• Look at the most recent consumer spending habits in the 2013 Consumer
Expenditures report [PDF] from the Bureau of Labor Statistics to see how in-
demand your products or services are.
• To find detailed information about your industry, visit the bureau’s Industries at
Glance pages.
• Check the most recent Producer Price Index to determine price stability for your
industry.
Next, take all the entire researches and make use of them to predict future sales.
Steps to Measure Sales Volume:
• Determine how sales are calculated for your industry.
• Create a profile of your ideal customer. For regional businesses, use the data
from the Census Bureau to determine how many of them live within a
reasonable radius of your business.
• Estimate your market share. Do this by determining the total number of
available customers and then predicting how many of them will buy from
you.
• Determine how often your customers will buy from you. For example, if you
own a beauty salon, you can count on your customers booking a service
every four to six weeks. However, if you run a tree-trimming service, once a
year customer headcount would be a good estimate.
• Predict the average amount of each purchase for each of your product or
service categories.
To arrive at your projected sales volume, use this given formula:

Number of Customers x Average Sales Price x Number of Yearly Purchases =

Yearly Projected Sales
 Example of a 5 year Sales Projection of a T-shirt Company:

AVERAGE QUANTITY YEAR 1 YEAR 2

SIZE SALES PER
PRICE MONTH QTY QTY
(UNITS) PESO (UNITS) PESO

SMALL 150 40 450 67,500.00 495 74,250.00

MEDIUM 170 66 600 102,000.00 660 112,200.00

LARGE 190 80 375 71,250.00 413 78,470.00

EXTRA LARGE 210 95 530 111,300.00 583 122,430.00

TOTAL 281 1,955 352,050.00 2,151 387,350.00

AVERAGE QUANTITY YEAR 3 YEAR 4 YEAR 5

SIZE SALES PER
QTY QTY QTY
PRICE MONTH
(UNITS) PESO (UNITS) PESO (UNITS) PESO

SMALL 150 40 545 81,750.00 599 89,850.00 659 98,835.00

MEDIUM 170 66 726 123,420.00 799 135,762.00 879 149,430.00

LARGE 190 80 454 86,317.00 499 94,810.00 549 104,310.00

EXTRA
LARGE 210 95 641 134,673.00 705 148,050.00 776 162,960.00

TOTAL 281 2,366 426,160.00 2,602 468,472.00 2,863 515,535.00

To generate the Revenue Forecast, use this formula:

Yearly projected sales – Total projected Expenses= Revenue Forecast

Exam

Example of Revenue forecast for a T-shirt Company:

PROJECTED EXPENSES COST/PC 281 SHIRTS YEAR 1

SCREEN PRINTING PRESS 2,500.00 2,500.00 30,000.00

WOOD SCREEN (50 USES/PC) 300.00 1,800.00 21,600.00

SILKSCREEN FABRIC INK (50 SHIRTS @ Php 3.00/pc) 150.00 1,405.00 16,860.00

PHOTO EMULSION(10-15 SCREENS @ Php 10.00/pc 100.00 2,810.00 33,720.00

LIGHTBULB 75.00 150.00 1,800.00

SHIRT 25.00 7,025.00 84,300.00

ACETATE FILM 3.00 1,405.00 16,860.00

UTILITY 350.00 350.00 4,200.00

LABOR COST 5,000.00 60,000.00

PERMITS AND LICENCSES 950.00 950.00

TOTAL 23,395.00 270,290.00

YEAR 1

TOTAL PROJECTED SALES 352,050.00

TOTAL PROJECTED EXPENSES (270,290.00)

FORECASTED REVENUE: 81,760.00

ACTIVITIES

ACTIVITY 1: ESSAY. Briefly explain the importance of forecasting in business.

__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

ACTIVITY 2: Based on your business plan, forecast the revenues of your proposed
business plan and the cost to be incurred 3 years from now based on the
computation we discussed in our lesson.
 PROJECTED COST QUANTITY YEAR 1 YEAR 2 YEAR 3
EXPENSES (____)

TOTAL

ACTIVITY NO. 3: Based in your proposed business plan, compute the profits of a
business 3 years from now using the formula discussed in our lesson.

SIZE/ AVERAGE QUANTITY Year 1 Year 2 Year 3

SERVING SALES PER
/SET PRICE MONTH Qty Peso Qty Peso Qty Peso

WRAP-UP

QUESTION-BASED
What are the key learnings from the lesson that will be an important thing to
know three years from now? Write at least three (3).
1.________________________________________________________________________________
__________________________________________________________________________________

2.______________________________________________________________
________________________________________________________________
3.________________________________________________________________________________
__________________________________________________________________________________

VALUING

QUESTION-BASED

What is the importance of forecasting your revenues for start-up and

existing businesses? How will it affect your business in the succeeding years?
Explain in at least five sentences.

__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

POSTTEST

Directions: Read each statement carefully. Write the word TRUE if the statement is
correct and FALSE if the statement is wrong.
_______1. Rent, Utilities, and Phone bills are examples of variable costs.
_______2. Revenue is a stage in the process of growing.
_______3. Forecasting helps us to anticipate the future condition of a business.
_______4. Fixed Costs are expenses that remain the same every month.
_______5. Financial forecast starts with revenue not expenses.
 KEY TO CORRECTION

5. C 5. False
4. A 4. True
3. B 3. True
2. A 2. False
1. C 1. False
PRETEST POSTTEST

References
BOOKS

Agustin-Acierto, Marife. 2017. Entrepreneurship. Intramuros, Manila:

Unlimited Books Library Services & Publishing Inc.

Edralin, Divina M. 2019. Entrepreneurship. Quezon City:

Vibal Group Inc.

WEBSITES:
https://www.investopedia.com/terms/f/fixedcost.asp
https://www.investopedia.com/terms/v/variablecost.asp#:~:text=A%
20variable%20cost%20is%20a%20corporate%20expense%20that,change%2
0no%20matter%20the%20change%20in%20production%20levels.
https://www.myaccountingcourse.com/accountingdictionary/direct-
labor-
costs#:~:text=Definition%3A%20Direct%20labor%20costs%20are%20the%20
wages%20or,difference%20between%20direct%20labor%20and%20direct%2
0labor%20costs.

https://www.entrepreneur.com/article/76418
https://www.collectivecampus.io/blog/10-companies-that-were-too-slow-
to-respond-to-change)