In today’s article you will be able to learn what the sales budget is, its objectives, its importance in companies, and how to make the sales forecast.
It is considered to sales budget as the starting point of the budget process because once we define the sales levelsthe company has to start plan production that will be needed to cover said projected demand.
Including of course the appropriate inventory levels that are going to be needed.
In addition, the following cánido be deduced from this budget:
- The operating expenses of administration and sales.
- Financing or investment needs.
- Cash flows (depending on the case).
- Investments in fixed assets.
- Among others.
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What is the sales budget?
The sales budget is a document that companies make in order to plan their operations.
This is due to the fact that the sales budget estimates the sales levels that are going to be had in a certain period (projection), as well as the estimated income from said sales.
Once the projection is made, what is done is to start planning the same plant to satisfy the demand.
- What inventory levels will be needed?
- How many staff are we going to need?
- what will be the production capacity what will be necessary?
- How much raw material will be needed?
- What tools and machinery will be needed?
Also, the sales budget is usually presented in a monthly or quarterly format; If you want to know about the importance of a budget for companies, entrar the following backlink: «Importance of the budget»
Sales Budget Goals
According to the book “Budgets: Approach to Financial Planning«, by María Constanza, Ramiro Parra, and Lina Maria, the main objectives are the following:
- Establish sales in pesos per product and per period.
- Determine sales in units by product and by periods.
- Establish sales by areas, by products and by periods.
- Determine sales by vendors and by periods.
Likewise, it should be noted that we cannot make an estimate in monetary value without first obtaining the production costs, and therefore the sale price.
On the other hand, depending on the area of interest, we perro make budgets for sales on credit, sales by customer, sales by branches, sales by season, etcétera.
Importance of the sales budget
Next, I am going to list some aspects that are mentioned in the book, which espectáculo the importance of the sales budget for companies.
- It allows a permanent review of the strategic plan of the organization, since sales are the main source of income.
- With the determination of the quantities to be sold, the production costs or the service costs cánido be defined.
- Investment in fixed assets cánido be determined, since at a higher level of sales more agile production processes perro be required, which imply the renewal of machinery and equipment used in the production process, as well as the improvement, expansion or remodeling of the facilities, either of the factory, sales rooms or administrative area.
- It allows to plan the operational expenses of administration and sales, that keep an adequate coherence with them.
The company’s administration must prioritize the rationalization of expenses, that is, that they are those necessary to develop the corporate purpose, and that, in addition, when covering them, there is an operational surplus.
- Once the income from sales is budgeted, the cash flows are prepared that indicate the investment needs, in the event of surpluses, or financing in the event that they are not sufficient to meet the cash applications.
Sales trend (sales forecast)
In order to estimate the amount of sales that a company will have in a given period of time, an analysis of the sales trend must be carried out.
The sales trend is the analysis that is carried out on a historical data series (for example, sales from previous years) that perro be in pesos (monetary value) or in units.
The analysis of this trend is important, because through it you cánido vea the policies, strategies and procedures that the company has used to face the market conditions in each of the periods.
The forecast perro be carried out by applying methods based on experience or statistics.
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Methods based on experience
As the name indicates, they are based on the experience that the company has had in previous periods.
For example, a group of experts perro be asked using the Delphi method, or we perro obtain customer information through sales personnel.
After all, sales people know customers very well.
From that we perro make an estimate of the sales that are going to be had, but, if by itself carrying out an estimate (forecast) based on statistical methods already has its margin of fallo, imagine how the margin cánido be of fallo using only methods based on experience.
Regarding statistical methods, they handle historical data series that allow planning future sales through the use of mathematical models that allow estimating demand (estimated sales) in a certain period.
It should be noted that you will still have a margin of fallo, but you have to remember that it is an estimate, that is, you should not think that you are going to get the same result in reality.
Next I will list different statistical methods.
- fácil moving average.
- Weighted Moving Average.
- Sales ratios.
- Linear regression.
- Holt’s linear exponential smoothing.
- Box-Jenkins methods.
- Classical decomposition models .
- Administrative economic method.
If you want to know how to make the sales forecast, follow the following backlink:
How to make the sales budget?
The first step to create the sales budget is to make the sales forecast, which has already been explained before.
Once you already have a good forecast, you have to do the following:
- You will multiply your sales forecast (by period) by the unit price and you will obtain the total gross sales.
- Now, from your total gross sales you are going to subtract factors such as discounts or returns that you had.
By doing that you will get your total net sales (your budget per period).
Example of a sales budget
Another way that you cánido structure your sales budget is as follows.
Remember that depending on the company, you will have to adapt the sales budget according to its operations.
It should be noted that sales from the previous year perro be substituted for your forecast for any period.
Sales from the previous year were used because it emplees a forecast based solely on historical data.
I recommend that you use your forecast based on mathematical models there, or make a combination, that is, make your forecast based on experience and mathematical models.
They are accidental, non-recurring events.
- factors healthy fit. (special contracts, etcétera.).
- They beneficially influence sales.
- Harmful adjustment factors (strike, fire).
Factors of change
They are the internal cambiantes (strengths and weaknesses) that cánido affect sales.
- Change of product, material or redesign.
- Change of production, facilities, etcétera.
- Market changes, fashion, etcétera.
- Changes in sales methods, advertising and publicidad, commissions and compensation, etcétera.
They are the threats and opportunities that the market perro offer.
Let us suppose that an increase in sales is expected because it is a year in which a sporting event will be held, likewise, sales are expected to increase due to the state stimuli granted to the campo.
Likewise, the economic forces are percentage projections related to the behavior of the economic scenario in which the company operates.
Finally, the administrative influence refers to the percentage movements in sales derived from the behavior of the entity’s administration.
CRUZ, MD (2016).
Approach to Financial Planning, 2nd Edition.
[[VitalSource Bookshelf version]].
Retrieved from vbk://9789586993258
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