What Is A Sales Budget? (And How To Prepare One)

 
A sales budget is a critical element in any business and something we talk about a lot in our Sales Training.

It’s hard to understand how much money you’ll make without a budget. And it’s even more challenging to plan when you don’t know your income. This guide will help you understand what goes into a sales budget and any other aspect you may want to learn about this type of financial plan.

 

What Is a Sales Budget?

Well, one way we define it is it provides an estimate of the volume of goods and services that a company proposes to sell in a future period. It is usually made for the following year. Most sales budgets include monthly and quarterly figures as well. Additionally, the budget provides details in both monetary figures and in units.

A company accesses data from various sources when it prepares a sales budget for the next year. How does a company get the information it requires to make its budget? Knowing this will help you develop a sales proposition in line with its future.

First, the company will look at its sales from the previous year – most firms try to exceed last year’s sales figures. This can be done by selling more to the same customers or by looking at new markets. A company could also try to increase its sales by launching new products.

Secondly, it uses future estimates for how well they think the company can perform in the next few months. These ideas can give a realistic figure for the sales expected in the next year.

Naturally, the company must consider any changes that are happening in the near future. Are they planning to expand their operation or cut back? Is the market planned to get larger or contract? Bearing these in mind can have a big impact on the way the company is looking at the future budgets it will lead with.

So, the planning of a sales budget provides details of the amount of money that a firm estimates it will receive from the sales of its goods and services in a particular period. That helps you to help the buyers to plan for the next few months or years, with your solutions proving a main assist in achieving their goals.

Sales budgeting, therefore, is to plan for and control expenditure of resources (money, material, facilities, and people) necessary to achieve the company’s desired sales objectives. It aims at leveraging and maximising profits.

Each different department within the company you would be working with usually demands additional funds and so there could be deviation from any agreed sales budget. There should, of course, be scope for deviations in sales budgets, as they are agreed at the time of development.

 

Why Are Sales Budgets Important?

A sales budget is important because it allows you to plan your income and expenditure. It gives you an idea of how much money you’ll make in the future and what areas you may need to cut back on if needed.

These are the reasons why you need a sales budget:

1. Improves Cash Flow Management

When you have a sales budget, it’s easier to keep track of your cash flow. You can see how much money is coming in and going out so that you can make better financial decisions for your business.

This is especially important if your business is seasonal. When you know what months will be busier than others, you can plan for it and make sure you have the cash flow to cover your expenses.

2. Helps You Determine Overhead Costs

It’s important to know your overhead costs when creating a budget. These are the expenses that come up every month, such as rent and utilities.

Knowing how much these will be each month for the next year is vital in making sure you have enough money to cover them each time they come around.

You also need to factor in the cost of payroll and your other wages. This is important to know because you can’t afford to pay these people if there’s no money coming in from sales.

Once you have this information, you can determine how much income needs to come in each month for the business’s survival.

3. Establish Business Strategies

A sales budget is also effective at establishing proper business strategies. For example, you can figure out how much money to invest in marketing or selling skills training for your team if your income isn’t coming in as fast as expected.

This may mean that you need to try a different form of advertising or find ways to make more customers patronize your store for the current fiscal year.

4. Easily Get Loans

A sales budget can also help improve your credit score. By showing that you’re able to manage your finances well, you may be able to get a loan with better terms or at a lower interest rate.

This is important if you need to expand your business or buy new equipment.

5. Predict Sales

If you’re interested in knowing how your sales will be for the next year, a sales budget is best to get this information.

Once you have all your numbers and figures together, make predictions on what income may look like based on historical data of previous years’ earnings.

This can help give you an idea of whether or not you can afford to expand your business or if it’s best to stay the way you are.

7. Attract Investors

Investors want to know if your business will be successful in the future.

By showing them a sales budget, you can give potential investors an idea of how much money they’ll make if they invest in your company and help prove that it’s worth their time and money.