Today a lot of specialized literature is devoted to business planning. You can come across special departments in the store which are dedicated to this issue. However, many novice businessmen often do not know the answer to the simple question: “Why a sales budget is essential to effective business planning?”. The logic of the question is quite obvious because preparation of the following issue requires both time and money. That’s why most businessmen prefer to think about it later and try to succeed without a proper made sales budget. This is their main mistake. All in all, it leads to the failure of the enterprise. It shows the importance of preparation for a sales budget.
5 Main Reasons to Think about A Budget Plan
If you have not implemented budgeting in your company yet, then you should know the top 5 advantages of working on a sales budget. Believe, the company will achieve its goals on time with proper budgeting.
1. You will have an action plan in advance. A company that wants to succeed must have a strategic development plan. Are you wondering how to do it? Just think of steps for several months or a year. Don’t forget to take into account the available resources and market opportunities that are necessary for achieving the goals. It also will show you:
- possible problems and solutions;
- best action scenario;
- balance between desired and possible.
2. Accurate control and simple performance measurement. You can control a variety of factors that influence the final result with help of a budget. Constant monitoring of its implementation allows to respond to changing situations quickly and act. If the control is carried out systematically and carefully, then the company’s management gains valuable experience, which allows developing a more accurate, realistic plan in the next cycle. So the accuracy of planning increases each time. The management system of the company becomes more efficient and effective.
3. Convenient assessment of the work of managers. Budget items determine the responsibility of managers and their proper use of HR software. Almost all companies that have introduced a system of budgets use it to evaluate the work of heads of departments.
4. The budget can be used as a means of motivating employees. The manager of the structural units receives not only greater independence by participating in the preparation of the consolidated budget, but also greater responsibility for the effective use of funds and the achievement of goals. Based on the implementation of the tasks set, it is convenient to build a system of incentives and motivation of employees.
5. Strengthening coordination and communication between departments. Coordination between departments of an organization is an important element of a company in which the heads of departments independently make decisions. The introduction of a sales budget in the organization is impossible without the transfer of information from one unit to another. For example, on the possibilities of purchasing raw materials, prospects for selling goods, equipment needs, etc.
How to Create a Sales Plan For Business
The success of the business phone system is a great example of effective business planning. These giants thought properly about creating a sales budget. If you want to get the same result, here’s what the process of preparing a monthly budget for any business includes:
- Listing all sources of monthly income, including sales and interest;
- A list of necessary fixed expenses, such as rent/mortgage, utilities, telephone. Don’t forget to include other possible and variable costs;
- Create columns for actual and budget revenues and expenses so you can see how the budget works in real time;
- Creating a starting budget.
What Factors Affect the Accuracy of the Sales Budget
The level of discounts
It is no secret that for sales volumes depend on discounts that are given to buyers. However, the financial result may be distorted if they are not checked.
Sales planning should include market inflation expectations. Rising prices depending on the level of inflation must also be planned.
Deferral of payments
Sometimes clients are given the opportunity to pay later. It should be understood that such delay means a loss of at least 2% of its amount. This percentage is obtained by summing losses from inflation and losses from non-investment of money, for example, on deposit.
This factor is the least predictable. Deprivation of a license or government intervention in the company’s activities cannot be predicted when drawing up the sales budget.
Every owner of a company, regardless of its size and industry, should always model the future of business and analyze its development scenarios. As has been mentioned above, it requires having a sales budget. Of course, these are not all available benefits as you will get a greater effect if customized. The experience of popular companies shows that having a budget system in an enterprise allows you to increase profit by at least 5-10%.