A Sales budget act as a yardstick for evaluating the company’s performance. Today in this article we have discussed what is sales budget and how it is prepared. factors affecting the budgets and their benefits for the business.
► What is Sales Budget?
The Sales budget, a type of cooperative budget, is a forecast of expected units, a company intends to sell over a period of time and the revenue it should generate from it.
- It is the basis for preparing the income statement for the business.
- A sales budget is a base document on which other budgets are prepared for the organization.
The management prepares the sales budget based on the Business environment, overall economic condition, competition, production capacity, available funds,..etc.
It serves as a reminder for meeting the clients and targets, also if the company’s actual performance is on the path with the budgeted figure company can take corrective actions on time.
◉ Sales Budget Meaning
Sales Budgeting is an essential function of sales management. It involves the estimation of future revenue and selling expenses. and also profit made by the sales function.
The outcome of sales budgeting is seen in the form of two documents that are as follows;
- Sales Revenue
- Sales Expenditure
◉ Definition of Sales Budget
A sales Budget can be defined as a spreadsheet that documents monthly, quarterly and annual budgets as well as financial goals, expressed in amount and units of production.
It’s essential to the business that the sale budgets are maintained and formulated accurately because if the information is a mission, this negatively affects the rest of the budgeting process.
► Purpose/Objectives of Sales Budget
The sales budget has two main purposes or objectives that are as follows;
- It is a mechanism of control and an instrument of planning.
- Budgets clearly define the resources required for performing activities that help an organization achieve its goals and act as an effective tool for controlling firms’ performance.
- Should be developed by those responsible for achieving the stated objectives.
- Generally, a firm’s budgeting process depends on the revenues it has been getting.
◉ Mechanism of control
Controlling and planning are interlinked to each other. And Budgeting in itself is a controlling process. It emphasizes controlling the deviations.
◉ Instrument of Planning
It is the process of determining a future course of action for helping employees and a path.
Sales Forecasting, scheduling the production process, and budgeting the sales expenditure for the organization are part of planning. It Should be followed diligently by all.
Also Read :What is Sales Forecasting?
► Types of Budget
- Business Budget
- Master Budget
- Operating Budget
- Financial Budget
- Capital Budget
- Sales Budget
- Overhead Budget
- Static Budget
- Cash Flow Budget
- Labor Budget
- Production Budget
► Major Elements in Sales Budget
There are various major elements in the development of the Budget.
- Budget Period
- Sales Data
- Market Trends
- Production Capacity
- Sales Budget Preparation
- Comparing Results
► Steps involved in Preparing Sales Budget
There are 6 steps in the procedure of developing a sale budget.
- Review and Analysis of situations
- Identifying specific market opportunities and problems
- Sales forecasting
- Communicating Sales goals and objectives
- The preliminary allocation of resources
- Preparing the budget
- Getting approval
✔ 1. Review and Analysis of situations
Involves collection of past data pertaining to the company budget for previous years and identifying any variations between planned and actual performances. This helps in taking necessary concerns in developing the current sale budget.
✔ 2. Identifying specific market opportunities and problems
Opportunities and problems that confront sales management can be assessed from the situational analysis.
✔ 3. Sales forecasting
Sales forecasting is done product-wise, client-wise, and according to sales territory. It is done for both unit-wise and rupee-wise sales so that deviation can be easily identified.
✔ 4. Communicating Sales goals and objectives
After Sales forecasting, the next important step for the sales manager is the communicate the goals and objectives to the sales department.
By encouraging them to participate in the preparation of the sales budget, a manager can obtain mutual agreement from them. These objectives should be prioritized.
✔ 5. Preliminary allocation of resources
Resource allocation starts from selecting salespeople, assigning tasks to them, and giving salespeople sufficient tools and most important, enough financial resources to cover their expenses.
✔ 6. Preparing the budget
Sales budgets have to be prepared by striking a balance between the potential of the sales force and the true nature of market opportunities. It should be flexible.
✔ 7. Getting approval
In the final step, the sales department seeks approval of the budget prepared. Once the budget is prepared it may need modification owing to environmental changes.
Also Read :What is Sales Management?
► Factors Affecting Sales Budget
- Sales trends & Capacity
- New Launches
- Seasonal Fluctuation
- Advertising & Publicity
- Change in Prices
- Growing Competition
- Changes in Govt Policy
- Changes in consumer demand
- Evolving situation & Technology
► Examples of Sales Budget
For Example, if a Company sold 225 units of product in quarter one and each product costs ₹2309, their budget would be ₹519525 (225 x 2309= 519525) for their first quarter.
A sales Budget is a well-defined document showing the expected sales for a future period. It is developed based on expected revenues from the sales record.
It is the first part of the master budget and forms the budget for the basis for other operational budgets like finance and production budgets.
► Advantages/Benefits of Budgeting
- Improved Planning
- Better Communication and Co-ordination
- Control and Performance Evaluation
- Psychological Benefits
- Sales Maximization
- Profit Maximization
- Helps in Formulating Sales Quota and Sale Target
- Helps in Assigning Sales Territory