Preparing an Operating Budget—Forecasting Sales and Revenues

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Historical data and run rates

If historical sales data is used as a base for forecasts, determine whether it is appropriate to use annual data or the run rate.

The run rate is the extrapolation of current financial results out over a future period of time. For example, if December's sales are $75,000, the annual run rate ($75,000 multiplied by 12 months) is $900,000.

Annual data may be most appropriate for forecasting one-off product sales, while the run rate may be better if you are forecasting revenues for services sold under long-term contracts, or for recently launched products.

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