Importance and Methods of Preparing Sales Budget In an Enterprise

The sales budget is regarded as the keystone of budgeting., the entire operations of the enterprise are planned around the volume of activities expected during a definite given period. As a matter of fact, a sales budget is the nerve center of the operating budget. Glenn A. Welsch has very rightly called it as ‘the pivot of budgetary control’. Because the degree of accuracy with which sales potential is estimated in the sales budget, determines to a major extent, the practicability of operating budget and profitability of enterprise.

Definition of Sales Budget:  A Sales Budget is a projection of sales during budget period. It lays down the sales potential in terms of quantity, value, period, area or product etc. It shows the estimate of sales- either gross or net sales. It is compiled after careful analysis and estimation of sales, selling allowance, and selling and distribution expenses. Basically, a sales budget is based on sales forecasting which is the responsibility of the sales manager. The basic information for budgeting production costs, selling expenses and administrative expenses are also provided by the sales budget.

Methods of Preparing Sales Budget In an Enterprise

The usual steps in the preparation of a sales budget are as follows :

(1) Organization for Sales Budget : Preparation of sales budget is the direct responsibility of sales manager. In the work, he is helped by all people working in the sales department. Sales representative, area and divisional sales manager all provide necessary help and initial forecast of sales and they are ultimately responsible for carrying out their share of the plan.

(2) Sales Forecast : A sales budget is the direct outcome of sales forecast. A sales forecast is a statement depicting the quantity, value of projected sales, product-wise, area-wise.and period-wise. Assuming that the organization of the sales department is on the useful pattern, i.e., sales manager, divisional sales manager, area sales manager, sales inspectors and salesmen; first of all, each salesman will estimate the sales he can make in his area in the budget period. He will forward his forecast to his area manager who will collate all such forecasts from his area. Then, area sales manager will prepare his area budget and forward it to divisional sales manager. He will forward these papers to the sales manager. He will prepare the sales budget for the whole organization on the basis of the sales estimates. Thus, sales budget is built from the bottom and not from the top.

(3) Consideration of Various factors : In developing a sales budget manager should take into consideration the following factors-past sales figures and trends, sales-men’s estimates, plant production capacity, availability of raw materials and other supplies, general trade prospects, orders on hand, seasonal fluctuations, financial aspect, competition expected etc. The sales manager, after taking into consideration the above factors, should prepare the sales budget in terms of quantities and amounts and the sales estimates must be analyzed for products, periods and territories. The sales budget should include an estimate of selling and distribution costs in addition to an estimate of the total sale proceeds.

Importance of Sales Budget

The importance of sales budget in the over-all process of budgeting is quite obvious. It is frequently referred as a backbone of operating budget. Glenn A. Welsch has very aptly called it as a basic foundation of the entire budgeting, it determines to a large extent the success or failure of a budget programme. Unless, the sales budget is developed with reasonable accuracy all the estimates in the operating and financial budgets will be misleading.