A sales budget may be prepared with the help of any one or more of the following methods.
(1) Analysis of past sales: Analysis of past sales for a number of years, say 5 to 10 years, viz. long-term trend, seasonal trend, cyclical trend, sundry other factors. The long-term trend represents the movement of the fortunes of a business over many years. The seasonal trend may affect many types of business and hence this factor must be taken into account when studying figures for consecutive months over a number of years. The cyclical trend represents the fluctuations in the business activity due to the effect of the trade cycle. In order to study the cyclical trend it is desirable to disregard the effects to the long-term and seasonal trends. Sundry factors include, such as a strike in the industry or a serious fire or flood. From such analysis it will be possible to suggest future trends. In analyzing such sales, considerable help can be obtained from statistical reports produced by the trade units and commercial intelligence units, government publications, etc.
(2) Studying the impact of factors affecting sale: Any change in the company policy or method should always be considered. For example, introduction of special discounts special salesmen, a new design of the product, new or additional advertising campaigns, improved deliveries, after-sales service should have some market effect on a sales budget. While preparing such forecasts, the sales manager must consider the opinion of divisional managers and other sales staff, the budget officer and the accountant. It will be observed that the preparation of a sales budget involves many factors and calls for a high degree of knowledge of conditions, and if ability to deduce fro the known facts and various estimates the probable course of sales budget is prepared first. If production is the key factor, the production budget should be built up first and the sales budget must be drawn up within up within the limits imposed by the production budget.
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