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© Copyright 2002-2003. All rights reserved.
Page 68
How To Investigate Any Business Opportunity
An increase in the difference between net and gross sales may indicate weaknesses within the company
in policy, sales effectiveness, merchandising, quality control, or a combination of two or more of these
factors.
20. What are the reasons for customer returns and allowances and what action is being taken to
reduce them, if reduction is possible?
Care should be taken in analyzing the sales of a company to see that gross sales are not taken as net
sales, particularly if lenient returns and allowances have been a part of the sales program.
21. What has been the pattern in the value of the average transaction over the past years?
Sales may be stationary, but the number of transactions may increase or decrease, thus changing the
value of the average sale. Or sales may be changing but disproportionately to transactions. The ideal to
be sought is an increase both in the value of the transactions and in their number.
22. How do transactions in this business compare in average value and number with those of
similar businesses throughout the industry or market area?
This will give a standard comparison to show how well the company has been able to realize an average
sale in terms of what it would be normal to expect.
23. What are the current sales per square foot of floor space for the business? What has been
the trend in sales per square foot for the past several years? How does this compare to known
averages or ratios for other businesses of this type?
The purpose of this analysis is to estimate how efficiently space is being used for sales purposes. It may
be figured on the basis of total gross footage, including area used for other than selling purposes, or it
may be limited to the space devoted primarily to selling and merchandising.
The Sales Forecast
When the business and the market have been analyzed, the probable sales volume of the business can
be forecast. This forecast should be a simple projection of the business involved; it should not be an at-
tempt to forecast or project the total state of the market. 
The variables that influence the market are too vast and complex for a small businessman to do any-
thing about. It will have to be assumed that what has happened to establish the condition of the market
as it is, will continue to have the same general effect, at least for the period just ahead.
This is a dangerous assumption - markets and the economy are dynamic, not static - but from the practi-
cal point of view, there is little choice. In any case, it is usually over longer periods of time that changing
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