Business owners need to keep track of their finances in order to effectively run the business. For many businesses, selling their products and services to consumers is only one aspect of running a business. Businesses also need to take care of their finances, specifically in budget planner and analyzing their financial resources. One of the most important tools that a business needs to have is a sales budget. Through a sales budget, a business or organization will be able to accurately allocate their financial resources to achieve their sales plans and goals.
With the market constantly changing every year, it is essential for the business to have an estimate on the number of sales that the business will earn for a particular period, including where the money is coming from. This will help businesses adjust their sales operations and other activities that the financial statement for business needs to do. Without a proper sales budget, a business can be prone to failing and spending unnecessary amounts of cash. In this article, we will be talking more about a sales budget, its importance to both small and large businesses, and the steps to help you create your own sales budget. If you need more information about this topic, read more about it below.
Definition of a Sales Budget
A sales budget is an essential document used by businesses and organizations that contains a plan of the products, goods, and services that a business expects to sell, as well as the estimated amount that the business expects to earn for a particular period of time. A sales budget is usually created on a monthly report or quarterly basis but can also be done by the company annually.
Through a sales budget, businesses will be able to estimate the amount of money that the business will earn for that period and allows them to understand where the revenue is coming from. A sales budget will also help businesses determine the types of products or services that clients and customers demand based on the previous sales budgets of the company, sales patterns, and economic conditions. More so, a sales budget is also used to plan template the amount of money that the business will need to have in order to sell the various products and services that they are currently offering to the market.
Why Is a Sales Budget Important for Businesses?
Now that we have discussed the definition of a sales budget, it’s time to talk about the importance of a sales budget for both financial statement for small businesses and large corporations. Why exactly is a sales budget an essential document needed for every business? As we have mentioned above, a sales budget helps businesses in estimating the sales numbers that the business expects to earn, including the costs and marketing plan done by the business to be able to achieve these sales projections. To help you further understand its importance, the reasons why a sales budget is important are as follows:
- A sales budget allows the organization to determine the overhead costs or the expenses that are needed to operate the business. Overhead refers to the expenses or costs spent by the business contract to market their products and services, to pay the rent, as well as for other administrative costs.
- A sales budget is important for businesses in order to properly manage their cash flow. Since businesses will be able to project plan or estimate their sales for a particular time period, these companies will be able to adjust their spending depending on the sales of the business.
- A sales budget is also important in order for the business to maximize certain expertise. Through a sales budget, sales representatives are given a specific budget to market the products and services being offered by the business. The business will have a better understanding of how to spend a particular budget depending on their clients, territory, and the marketplace in order to increase the sales of the business.
Preparing a Sales Budget
Understanding the necessary steps and elements needed in a sales budget request is important in order to have an effective tool and document that your business can use. To help you create a sales budget, the steps for creating one are as follows:
- Before you start, the first step that you need to do is to determine the period that you want to create a sales budget. Usually, the creation of a sales budget can be done either on a monthly, quarterly, or annual report basis. Since a sales budget is essential for organizations, it is best that you create one monthly or quarterly to be able to get an accurate and updated document.
- The next step is to gather all the necessary information based on your company’s previous sales data, this applies to business plan that have been running for a few years. For example, if you are creating a sales budget for a specific period, you can gather data from the previous year during the same period. This will allow you to have the right data that you can refer to for your recent sales budget.
- If your company is new, you can collect information and data from other sources such as companies who are in the same industry as your business. You can access the sales reports of public companies in order to collect the needed information and data.
- Keep track on the number of salespeople currently working for your business and compare these numbers with your previous periods since it is important that you adjust your sales figures depending on the number of sales people you have in your business. Also, experienced salespeople can be helpful in providing you with accurate data and projections.
- Although your business’s previous records can provide you with some useful information and can be a good start for a sales budget, you still need to conduct research on the current trends in the market. This is especially important since market trends are currently changing. Through this, you will be able to accurately estimate your business’s sales for the said period.
- Next, acquire information from your business’s customers or clients. If these customers trust and are loyal to your company, you can assure that you will have an increase in your future sales. Also, incorporate the buying trends of your customer feedback and clients when creating a sales budget.
- Now that you have gathered all the necessary information needed in the creation of a sales budget such as the data on the buying trends of customers, the strength of your business’s workforce that are involved in the sales, the condition of the market, and other relevant information, create an estimate or projection of the sales for the budget memo period that you have identified.
- Compare your sales projections with the actual results that you have for that period. This will help you understand whether your estimate is close to the results. Any errors that you may encounter with your sales budget will allow you to make the necessary changes in order to have a more accurate sales budget in the future.