In a company, all areas are important, since the business cannot be conceived in the absence of any of them. Broadly speaking, a normal cycle of any business is:
- In the case of an industry: buying raw material, transforming it into a product, selling this product and charge for it.
- If it's a commercial company: buy the merchandise, sell it and charge for it.
- If it's a service company: having what's needed to provide the service, sell it and charge for it.
As we can see, the constant in any company will always be to sell. For this reason, sales a key area for any company, for they're the engine or the income generator that will later bring utilities -once we remove costs and expenses. It's true that we can't focus only on selling, we should mostly focus on generating profits, utilities, but if we don't have sales, we'll have no income and let alone, profits.
That's why it's a priority for every company to have a sales budget.
What is a Sales Budget?
It's an estimate made based on:
- Previous sales
- New market channels and,
- Inventory planning (estimate of what will be sold over a certain period of time, usually a whole year, but separated by each of the twelve months)
There are companies whose sales remain constant throughout the year yet, there are others which must consider each season in order to estimate their sales budget. This depends on the company's line of business, since the sales of each line of business usually increase or decrease according to the seasons.
- If it's a toys store, it will sell more during December (Christmas) than it will in any other month of the year.
- If it's a company that sells school supplies, it will sell more in August and September (back to school) than it will during the rest of the year.
This budget must be estimated based on real numbers, taking into account the resources of the company and the real potential of the market. It shouldn't be made based on idealistic numbers.
Since it's an estimate only, it may not meet reality 100% yet, it's a great and rational starting point for the projection of your company's income, which will also help in estimating the projection of your profits. This makes it a great tool for decision making, such as: buying of inventories, future investments, company's growth, etc.