Definition: A sales budget estimates the sales in units as well as the estimated earnings from these sales. Budgeting is important for any business. Without a budget companies can’t track process or improve performance. The first step in creating a master company while budget is to create a sales budget.
What Does Sales Budget Mean?
Management carefully analyzes economic conditions, market competition, production capacity, and selling expenses when developing the sales budget. All of these factors play an important role in the company’s future performance. Basically, the sales budget is what management expects to sell and the revenues collected from these sales.
Example
Management often utilizes employees in various departments to help with the sales and revenue estimates. For instance, management will most likely consult with the sales department or salesmen to establish a reasonable sales goal for the future year. The individual sales personnel have more experience and more knowledge of current trends as well as customer territory than the upper level management does. After management has gathered information from various departments, a sales budget can be drafted.
The sales budget not only sets goals for the company, it also provides a framework for the other company wide budgets. Every other budget is based on the sales budget. That is why the sales budget is the starting point for the master budget. A company must know how many products it will sell and how much revenue will be generated before it can determine purchasing budgets, manufacturing budgets, and capital expenditure budgets.
