Question

The master budget is the company’s plan for achieving their goals. The process has a distinct starting and ending point. In looking at the sales budget, the sales budget dictates what the other areas in the budget should look like. As the head of the sales area, what steps should be taken to ensure the budget is developed in a realistic way?

If bonuses are based on the sales, you as the sales manager want to ensure you and your team will receive the maximum bonus. How would you develop the sales budget? What effect could this have on the other areas of the budget?

Answer 1

Sales or Turnover as commonly known in accounting is the important factor for determining the growth of company.

The sales budget is prepared by carefully looking at the performance of the company over the past relevant periods. The forecast should be realistic and achievable by the concerned department. The budget has to be prepared keeping that in mind.

Steps to be taken ensure the budget is prepared in realistic way are as follows :

1) Compare the sales of the previous relevant period.

2) Check the growth trend and market situation and determine the target to be set.

3) Have a close eye on the strategy adopted by the competitor and draft a more cost efficient budget so that the customer shall get maximum satisfaction.

4) Follow low cost maximum return strategy.

5) Closely monitor the demography and its preferences.

6) Have a meeting with the sales personnel to discuss the ideal way to proceed as they are aware of the current market trends.

Steps to receive the maximum bonus :

1) Introduce new scheme for the incentive for the distributors and agents which will encourage them to sell the product and also which will help in increasing the sales of the company.

2) Determine the ideal area of operation for individual products.

3) Provide necessary inputs to the sales team and lead them by example.

4) Introduce scheme for incentive to sales personnel that shall motivate them to do sales with more commitment.

Effect on other areas :

1) The more the sales, the more the market hold.

2) Market hold helps the company to have less competition in the market.

3) Increase in sales lead to increase in the net worth of the company.

4) Net worth increase will increase the goodwill of the company.

5) Goodwill will increase the market value of the share of the company and increase the demand for its share in the market.

6) Good performance shall lead to more Profit and profit will help in dividend for the shareholders.

7) The more sales the more production increase should be there.

Purchase will increase, Direct expenses such as wages carriage inwards will increase. The indirect expenses such as salary, carriage outwards and advertisement expenses will be more to meet the sales target.

Overall the net profit of the company will be positive and the Earning per share shall increase.