Purpose of Sales Budgeting

Purpose of Sales Budgeting

The purpose of sales budgeting is to plan and coordinate various sales-related activities and to ensure they are effectively controlled and monitored.

Planning

Sales budgeting allows the management to foresee and prepare for the conditions and events anticipated in the specified period.

Control

Control is needed to ensure that the plans and objectives established in the budget are being achieved. It enables organisations to evaluate current and proposed spending patterns in detail, giving them a lot more control by responding to any variances. An analysis of the budget also helps to identify and eliminate unnecessary costs.

Coordination

By aligning the sales efforts with the objectives of the organisation, sales budgeting plays an important role in establishing and maintaining coordination within the sales department and between the sales department and other departments in the organisation.

Measurement of performance

Budgeting provides managers a means of (quantitatively) measuring performance in achieving targets that have been established. Budgeting also helps to determine financial success by comparing the current performance with that in the past.

Fixing roles and responsibilities

Budgeting specifies the roles and responsibilities of the different members of the sales department, including the department head.

Communication

By providing a plan and guidelines, budgeting serves as a platform for communicating information within the organisation. Budgeting specifies the roles and responsibilities, thus communicating accountability for different tasks.

Growth goals

Budgeting establishes targets for the sales team that will enable the organisation to grow and expand once they are achieved. It helps to incentivise good performance by the sales team.

Master budget

The sales budget is the starting point in preparing the master budget as most of the other components in the master budget including production, purchase, inventory, and expenses are influenced by the sales budget.

Budgeting of other departments

The budgeting of different departments might be dependent on the sales budget, for example, production expenses are proportional to the sales targets. Thus, sales budgeting enables organisations to determine the budgets of other departments such as production and marketing. Apart from these variable expenses, fixed expenses such as rents and utilities are also decided through the sales budget.

Financial goals

Budgeting helps to anticipate the financial condition of the organisation in the future.

Motivation

Budgeting allows organisations to measure results and performances that can often help to motivate the sales force.