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Chapter Code: SDMC07
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A budget is a plan expressed usually in monetary terms. It is a process of allocating a portion of an organization's resources for its various activities for a specified period of time. It helps in planning and coordination of the organization's activities. Sales budgets are developed for the smooth functioning of the sales function. Developing sales budgets serve two purposes - as a mechanism of control and an instrument of planning. There are several benefits an organization derives from budgeting. They are -- improved planning, better communication and coordination, performance evaluation, psychological benefits and avoiding uncontrolled expenditure.
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The different methods for budgeting include the affordability method, percentage-of-sales method, competitive parity method, objective-and-task method and return-oriented method.
The success or effectiveness of each of these depends on the involvement and support received from the top management and the flexibility built into the budgets. To develop an efficient sales budget a manager has to follow certain steps like review and analysis of the situation, identifying specific market opportunities and problems, sales forecasting, communicating sales goals and objectives, preliminary allocation of resources, preparing the budget and getting approval for it.
A meticulously developed sales budget provides many benefits to an organization. But, like any other management concept, budgeting has its share of limitations. They include inability to project the course of future events, inability to gain acceptance by all people in the organization, consumption of significant amount of managerial time and avoidance of expenditures that will bear fruit only in the long run. Once adequate care is taken to overcome the limitations of budgeting, it will act as a tool to enhance the profitability of the organization.
Purpose of sales budgets
Mechanism of control
Instrument of planning
Benefits of budgeting
Improved planning
Better communication and coordination
Control and performance evaluation
Psychological benefits
Principles of budgeting
Types of budgets
Sales budget
Selling-expense budget
Administrative budget & Profit budget
Methods of budgeting for sales force
Affordability method
Percentage of sales method
Competitive parity method
Objective-and-task method
Return oriented method
Requirements for successful budgeting
Involvement & support of top management
Flexibility in budgeting
Developing a sales budget
Review and analysis of the situation
Identifying specific market opportunities and problems
Sales forecasting
Communicate sales goals and objectives
Preliminary allocation of resources
Preparing the budget
Getting approval for the budget
Precautions in preparing sales budgets
Inability to project course of future events
Inability to gain acceptance
Involvement of time
Repudiation of the long term
