Question

“The sales budget is the most important budget.” Do you agree or disagree? Explain

your answer. (Please answer this question by more than 10 sentences)

Answer 1

Definition: A sales budget estimates the sales in units as well as the estimated earnings from these sales. Budgeting is important for any business. Without a budget companies can’t track process or improve performance. The first step in creating a master company while budget is to create a sales budget.

What Does Sales Budget Mean?

Management carefully analyzes economic conditions, market competition, production capacity, and selling expenses when developing the sales budget. All of these factors play an important role in the company’s future performance. Basically, the sales budget is what management expects to sell and the revenues collected from these sales.

Example

Management often utilizes employees in various departments to help with the sales and revenue estimates. For instance, management will most likely consult with the sales department or salesmen to establish a reasonable sales goal for the future year. The individual sales personnel have more experience and more knowledge of current trends as well as customer territory than the upper level management does. After management has gathered information from various departments, a sales budget can be drafted.

The sales budget not only sets goals for the company, it also provides a framework for the other company wide budgets. Every other budget is based on the sales budget. That is why the sales budget is the starting point for the master budget. A company must know how many products it will sell and how much revenue will be generated before it can determine purchasing budgets, manufacturing budgets, and capital expenditure budgets.

Why Is a Sales Budget Important?

Creating a sales budget is an area of business that many companies rely on for many other components of their operation. The sales budget is a document that attempt to forecast how much will be sold over a specific period of time. This is a very important document for a number of reasons.

One of the reasons that sales budgets are so important is because all of the other business budgets are based on this one document. Without the sales budget, you cannot forecast anything else that will go on your business. You do not know how much you should spend on advertising, how much you should spend on production or any other component of your business. While you know your fixed expenses like rent and utilities, the rest of the expenses will largely depend on how much you sell.

Sales Goals

Another reason that a sales budget is so important is because it helps set a specific goal for the sales staff to reach. The budget can be a rallying point for groups of sales people when they are trying to reach a certain threshold. Many businesses give their sales staff a specific bonus if they hit their sales budget. This can help motivate the sales staff to work harder and sell more. Sales managers can rely on these numbers to know exactly what they are expected to do each month.

Advertising

Most businesses spend a large amount of money on advertising on a regular basis. If the business has been doing this for some time, it most likely has an idea of how many sales are generated from the advertising. If the company has a projection on how much it will sell during a given period of time, it also knows approximately how much to spend on advertising to generate these sales. This will help the company avoid spending more money than is necessary when it comes to advertising campaigns.

Other Strategies

The process of developing a sales budget helps a company know how much it can expect to sell during a given period of time. If the company determined that this is not enough money to meet its current obligations, it can begin the planning process of looking at other income-generating activities. For example, the company might wish to expand into other products or markets to increase revenue if needed. Without planning ahead, the company could be caught off guard.