Planning and budgeting are essential parts of any business. Without proper budgeting, you cannot achieve your objectives. A sales budget is also important as you may lose track of your goals and objectives without an adequate sales plan. A sales plan makes it easy to manage your sales and make sure that you achieve what you have planned. While preparing a sales budget is not very difficult, you may need to keep a few factors in mind. Let us tell you how to prepare a sales budget that helps you keep track of and obtain your goals.
What is a Sales Budget?
A sales budget is designed to predict the total expected sales over a particular period. It enables you to estimate the number of products your company will sell at a specified price. A sales budget helps you keep on track with your quarterly or yearly goals, leading to the business’s financial stability.
A sales budget is different from sales forecasting as it does not entirely focus on predicting sales revenue. It is a planning tool that encourages businesses to manage resources and profits according to predicted sales. It considers the previous sales and sales patterns over a period. It allows each department to have a clear picture of the sales budget of the past and how to manage it. It not only pushes the company to achieve its goals swiftly but also maximizes profits. A sales budget may focus on short-term or long-term objectives. You can break long-term sales goals into yearly or quarterly objectives.
The sales budget keeps the expenses tamed as the departments are aware of the allocated budget. They are expected not to exceed the sales budget and manage within the available resources.
Why do you Need a Sales Budget?
If you are a budding business with no sales budget, you should plan it soon. It serves various purposes and gives you an advantage in the long run. It also helps large organizations keep on track.
The benefits of a sales budget include
Setting Objectives
Consider setting objectives as the purpose and the driving force of a sales budget. While you plan your sales budget according to your goals, the sales budget also helps you set objectives. It enables you to monitor the team’s performance by observing how well they follow the goals. Realizing and communicating goals is critical to organizational success.
Expense Management
A sales budget also acts as a guide to a company’s financial planning. It allows the managers and higher hierarchy to work according to a more particular reference point for departmental or project expenses. It allows them to plan other matters accordingly when they are better informed of the sales budget.
Performance Analysis
A successful sales budget helps you achieve objectives better than in previous times. It sets the benchmark for the sales department, particularly to assess their performance accordingly. The performance of the sales budget also helps you see if you need any changes in the next sales budget. A company’s sales ultimately contribute to the overall performance and efficiency measure.
Components of a Sales Budget
All businesses, small or big, usually have a sales plan.
However, the components of the sales budget depend on your organizational structure. You may have a small or large sales budget spreadsheet than other companies. Yet, a sales budget has three basic components:
Income Statement
The income statement helps you create a sales budget by considering the company’s net income and present condition. It keeps you within the possible budget limit without compromising on the goals.
Cash Flow Statements
The cash flow statements summarize the incoming and outgoing cash flow in the organization in the past budgeting periods.
Balance Sheet
The balance sheet contains a list of a business’s assets, liabilities, and equity applicable for that particular budget period.
How to Prepare a Sales Budget
Decide the Budgeting Period
Sales budgets significantly depend on the period you are covering. Some companies opt for an annual sales budget, while others prefer quarterly. If you are a new business, you may also use a weekly or monthly budget per your ease. Deciding the budgeting period clarifies the objectives and available resources for that time.
Consider the Pricing
Pricing is a critical part of sales budgeting as you cannot estimate the total revenue if you do not know the cost of each unit you sell. Creating a sales budget depends vastly on your pricing and how you see it in the coming months or years. You must also account for a potential increase in the price of the product.
Analyze Previous Data
The previous sales budget data from a similar period can help you realize what to expect in the coming tenure. It provides a clear picture of the statistics and shortcomings in the previous budget that restricted you from reaching your goals. Also, look for your products or services’ performance during that season to get a better estimate as some products do better in specific seasons or circumstances.
Check your Competitors
It is essential to keep up-to-date with the current market trends and your competitors’ strategies. Sometimes you may miss a particular aspect that your business rivals pay heed to. It also lets you identify if you should prepare a short-term or a long-term budget according to the market situation. Look into their sales to see where you can do better.
Take Feedback
When you think, “how can I prepare a sales budget,” remember that the customer is the most critical part of your brand.
Talk to your customers to see what they like and where you should focus on improvement. Ask if they still want your product or service or are looking for modification. The goal is to retain as many customers while attracting new ones. It helps you create a realistic sales budget for the organization.
Get to it
Once you are well-informed about your previous data, market trends, and competitors’ strategies, you can start working on your budget. Make sure to consider the balance sheets, income, and cash flow statements to better understand the money flow.
Factors Affecting Sales Budget
Market Trends
Market trends affect your sales budget majorly as they help you decide the prices and how much you should spend on each section. For example, your product range consists of heaters and heating mattresses. The demand for such products dies during the summer season in tropical countries. If your business relies on sales from these regions, you will have to choose something else based on current trends and needs.
Capacity
The sales budget also depends on your company’s capacity. Let’s say your rival company had a $20,000 sales budget for the first quarter. However, your business might not be able to reach the same amount. Do not overburden yourself to compete with others until you have the capacity and enough resources.
Advertising
You might not feel so initially, but your promotion budget also plays a major role in your sales budget. Many companies cut down on their advertising budget to save costs. Let us tell you a secret, though; never shy away from spending money rationally on marketing. Better advertisement means retaining more customers. And what else do you need?
Addition to the Product Line
You will need to revise your sales budget when adding a new product or service to your business. The added products’ costs and expected revenue generation affect your total sales budget. So, do not forget them.
Seasonal Trends
As mentioned earlier, you may face fluctuations in sales depending on your product’s demand in a particular season. People probably do not buy as many turkeys the whole year as they do during thanksgiving. It is high time meat sellers advertise their services and make the best out of them.
The Bottom Line
Preparing a sales budget is quite simple when you have all the relevant data. Study your previous sales records, competitor sales, and market trends, talk to your customers, and create a budget accordingly. Previous sales, balance sheets, and cash flow statements can be quite helpful in preparing the proper sales budget for your company. Consider influencing factors like market trends, new products, advertising, and your business’s capacity when finalizing the budget.
FAQs
Which is the First Step for Preparing a Sales Budget?
The first step of sales budgeting is preparing the sales forecast to estimate the sales revenue considering the price per unit. It may be estimated by competitor sales or the company’s previous year’s budget.
What is the Format of the Sales Budget?
The sales budget is typically prepared in excel. It basically constitutes itemizing the number of expected unit sales in one row and the price per unit in the other. The third row represents the estimated sales revenue for the period.
Why is the Sales Budget Usually Prepared First?
Preparing a sales budget helps you understand how quickly you can reach your short-term goals. It enables the companies to predict the number of sales and revenue during the next tenure. The income depends on your sales and current market trends.
Matthew is a Co-Founder at BusinessFinanceArticles.org. Matthew was a floor manager at a local restaurant in Wales. He lost his job after the pandemic and took initiative to make a team and start the project.
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