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Sales Budget


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We will discuss:

Purpose of sales budgetsBenefits of budgeting

Principles of budgetingTypes of budgetsMethods of budgeting for sales forceRequirements for successful budgeting

Developing a sales budgetPrecautions in preparing sales budgets


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Introduction

First used by companies like GM and DuPontin 20s

Budgeting process helps represent theorganizations objectives and strategies innumerical terms

Helps in smooth functioning


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Purpose of sales budgets

It serves two major purposes:

Mechanism of control

Instrument of planning Budgets should be prepared by those

responsible for achieving stated objectives

Organizations budgeting process depends onthe revenues that it is getting


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a. Mechanism of control:

Controlling and planning are interlinked,

controlling is a process of making disciplinedeffort to follow an established plan of action

Sufficient training is to be given to theemployees about the best utilization of

budgeted resources.


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b. Instrument of planning:

Forecasting sales, scheduling the productionprocess and budgeting the expenditure for theorganization are part of planning.

It works well only when all the levels of peoplework on it diligently

Budgeting is a planning tool which help the

organization anticipate all future needs andallocate sufficient resources to get maximum

profitability.


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Benefits of budgeting:

Improved planning

Better communication and coordination

Control and performance evaluation Psychological benefits


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Principles of budgeting

All employees must be involved in the process

It should be practical and gain acceptance in the

organization Outputs must be linked with inputs

It should be flexible to adapt to environmentalfactors

The management should continuously learn


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Types of budgets:

Sales department in general prepares threetypes of budgets:

Sales budget Sales expense budget

Administrative budget and profit budget


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Sales Budget

It is a detailed plan showing the expected salesfor a future period and is based on expectedrevenues

Most crucial part of the master budget

Forecasts are prepared for each productdivision as production and finance departments

should know the no. of units required.


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Sales Expense Budget

It is plan that gives expenses that would beincurred by the sales department to achieve

planned sales.

Includes commissions, salaries, traveling,entertainment expenses and costs incurred ontraining

It must be closely linked with sales budget.


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Administrative budget and profit

budget: Administrative budget comprises the budget

allocation for general administrative expenses

Sales and selling expense budgets are preparedseparately, but sometimes both are combined todevelop profit budgets.


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Methods of budgeting for sales force:

Affordability methods

Percentage of sales method

Competitive parity method Objective and task method

Return oriented method


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Requirements for successful

budgetingThere are certain criteria that a successful

budget should meet.

They are Involvement and support of the topmanagement

Flexibility in budgeting


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Involvement and support of the top

management: Top management should understand the role of planning as

a control tool, then they should ensure that, everyemployee too understands and appreciates the budgetingprocess.

They can encourage responsible people in theorganization to develop budgets as they are the betterjudges of their performance

Management should ensure that budget is viewed as aneffective tool but not as a pressure device

Control aspects are equally vital and management shoulddefine what controlling is and what it means to theorganization as a whole.


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Flexibility in budgeting:

When changes takes place, organizationsrarely achieves planned performance

Budget needs to be flexible so that it canminimize the negative effects of variations

between the planned and actual performance.


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Developing a sales budget:

To develop an efficient sales budget an organization hasto follow certain steps:

Review and analysis of the situation

Identifying specific market opportunities and problems

Sales forecasting

Communicate sales goals and objectives

Preliminary allocation of resources

Preparing the budget

Getting approval for the budget


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Precautions in preparing salesbudgets:

Budgeting process has certain drawbacks too.Let us discuss the draw backs and necessary

precautions to be taken to reap the benefits:

Inability to project course of future eventsInability to gain acceptance Involvement oftime Repudiation of the long term needs

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