In: Accounting
how would rapid sales growth affect the annual budget? Include in your discussion, the steps managers need to take while preparing budget reports.
Rapidly increasing sales are the dream of many a small business owners, but with them come more than increased profits. In addition to accounting and tax implications, expansion may cause supply, inventory, staff or other problems. Don't wait until your sales unexpectedly take off before you plan for a rapid expansion.
Marketing
If your advertising, promotions or public relations budgets are tied to sales, you may find yourself giving certain departments more money than they need. It may be that your existing marketing efforts were sufficient to increase your sales, and extra spending might be a waste of cash. On the other hand, increased marketing spending might further expand your sales or help you keep your momentum. Check with your departments to review marketing budgets when you experience an increase in sales.
Taxes
Increased sales means increased taxes. If you are a small businessperson who pays quarterly tax payments, increased revenue may affect you in two ways. First, you'll need to reserve more money for your quarterly payments. Second, you might need to recalculate your expected taxes because you might move into a higher tax bracket. Work with your budget person to try to estimate your pre-tax profits under your new sales scenario, then meet with your accountant to see how this affects your tax rate.
Overhead
An increase in sales might require you to produce more goods or services, which can require more staff or staff time. If your overhead includes employee benefits, such as 401K matching, payroll taxes, bonuses and other worker-related costs, you may need to recalculate your overhead. Many small businesses assign overhead percentages to different areas of their company, and you should adjust these numbers to keep your overall budget realistic.
Profits
One of the biggest areas of difference in your budget after a surge in sales may be your expected profits. Often, economies of scale mean exponentially larger profits, not just per unit increases. For example, if you're pre-surge cost per widget was $2, including overhead, your post-surge profit might be $2.10, since you might not increase certain areas of your overhead, such as rent, utilities or marketing. This means your overhead contribution to each item will be less. With this extra cash, you can pay down debt, which lowers your interest payments. You can buy new equipment, which can decrease production costs, but also have expense and depreciation implications for your budget.
If I am manager change the inventory management system immediately. JAM is the best way to seep up the process and reduce the warehouse burden and that leads to use the past warehouse for finished goods. Calculate the demand and find is this demand artificial, seasonal or anything else. By the time not excite more and find cause for that.
Many organizations prepare budgets that they use as a method of comparison when evaluating their actual results over the next year. The process of preparing a budget should be highly regimented and follow a set schedule, so that the completed budget is ready for use by the beginning of the next fiscal year. Here are the basic steps to follow when preparing a budget:
The number of steps noted here may be excessive for a smaller business, where perhaps just one person is involved in the process. If so, the number of steps can be greatly compressed, to the point where a preliminary budget can possibly be prepared in a day or two.