In this chapter, we will explain what a sales budget is and how you can set a sales budget for a company
Through our study in the previous lecture of MASTER BUDGET, the sales budget is actually the basic budget when we talk about how to make other budgets (production budget – wages budget – expenses budget – …. etc.)
Sales budget concept
This budget represents the sales plan during the period for which it is prepared, and its estimates are made in the light of the objectives that the economic unit aims to achieve with regard to the types and quantities of products, the expected revenues from each of them, the selection of marketing areas, the determination of distribution methods, and means of activating sales.
It contains the estimated sales for the budget period, which is the main source of revenue for the establishment
The success of the budgeting system depends a lot on the accuracy of forecasting future sales
The importance of balancing sales
- The sales plan is set in the light of the objectives that the economic unit aims to achieve with regard to the types and quantities of products, the expected revenues from each of them, the selection of marketing areas, the determination of distribution methods and means of activating sales.
- The sales budget is a basis for preparing estimates for the types of purchases and the quantity of each, the timing of purchase, and the quantity of stock that must be kept of each commodity in commercial companies.
- The sales budget is considered a basis for preparing estimates for production programs and what is required to implement these programs in terms of commodity requirements, direct work, industrial services, and the percentage of production capacity exploited in industrial companies.
- Preparing the estimated sales budget depends on the results of economic and statistical studies usually conducted by the Marketing Research Department to predict the market needs of the various commodities that the company produces or markets.
- Many departments participate with the sales department in setting sales estimates so that these estimates are verifiable in light of the available possibilities.
Sales budgeting and forecasting techniques using forecast formula
Sales forecasting methods
Sales forecasting depends on sales management in the first place, and it may resort to using its personal experience to forecast sales in light of:
Past sales trends
General conditions of the economy as a whole - the external environment
Industry level / market research
The company's pricing policies
We may resort to estimating statistically through the equations available on Excel to do this function, especially the FORECAST equation:
(FORECAST - FORECAST.LINEAR - FORECAST.ETS.SEASONALITY - FORECAST.ETS - FORECAST.ETS.CONFINT )
Collection policy and its relationship to the sales budget
The cash budget is fed through it so that the cash inflows can be calculated in a timely manner and without it there will be no cash budget and this will be reviewed later in the cash budget
Assuming that we have a company that works in the bicycle trade, and the quarterly sales were as follows:
Through the previous assumptions, he concluded the collection budget, noting that the collection is 60% cash, 40% is a three-month term, and the receivable credit balance is $10,000.
Difficulties in preparing the sales budget
Sales management only forecasts values
The collection department does not have a collection policy
Management's belief that sales are unpredictable