Businesses develop budgets to identify, plan, track and allocate personnel and financial resources across their operations. Companies create a sales budget to determine how much revenue they expect to generate from their products and services. Because sales provides the top-line number in all operating budgets, after the master budget, the sales budget is the next budget companies usually prepare.
A budget is a forecast that businesses prepare to act as a road map in aiding the company in achieving its sales, expansion and profitability objectives. Companies typically craft a master budget using the previous year’s income statement as the base. However, businesses that intend to issue or access debt, pursue investment capital or purchase assets often develop a balance sheet forecast as an addition to the income sheet forecast. A master budget is the overall budget for all departments and functions showing the target the company intends to meet during the accounting period, typically one year. Most budgets break down the year into quarters or months for ease of monitoring and adjusting.
The sales budget contains a detailed breakdown of a firm’s revenue expectations for the accounting period in question, typically in units and dollars for product companies. Companies can be as detailed or as general as they deem appropriate. For example, a company may provide sales dollar and number forecasts for each product it sells or may group the products into categories. A sales budget’s aim is to assist the company in determining revenue, not to bog it down in data minutiae.
Sales Budget Creation
A master budget is the overall budget for all departments and functions showing the target the company intends to meet during the accounting period, typically one year. Companies typically carve out the sales numbers, cost of goods sold and selling expenses given in the master budget to use as the base for the sales budget. The sales department or the owner or manager in charge of sales uses these numbers, any company goals outlined in the business’ strategic plan and the manager’s expectations for the coming year to create the sales budget.
Businesses prepare the sales budget before the production or service delivery budget. For companies to determine how much in expenses to associate with production or service delivery, they must first determine how much product they need to produce, how much inventory they need to buy or how many services they need to sell. The sales budget provides this information, serving as the budgeting cornerstone. The same thought process applies to all the other departments, including marketing, purchasing and customer service. Because the sales budget often reflects cash collections, companies also prepare the sales budget before the cash budget.
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