Bugeting

In the name of Allah the most beneficent and merciful.

Sales Budgeting

Presentation by:

Gohar Majeed

Aitzaz

Abdul Haseeb Khan

Aamir Ayyaz

Zia ul Mustafa

Syed Muhammad Rizwan

Presentation objectives

Definition of sales budgeting

Use of sales budgeting by sales management

Explain major types of selling expense budgets.

Identification of steps of sales budgeting procedure

Actual sales budgeting practices

Budget:

Financial statement that outlines a firm’s intended actions and resulting cash flow statements.

Sales Budgeting:

Estimating future levels of revenue, selling expenses, and profit contributions of the sales function.

Zia ul Mustafa

Major budget categories

Major budget categories

Sales budget Selling expense budget

Budget categories

Sales budget: Projection of revenue computed from forecast unit sales and average prices.

Selling expense budget: Approved amounts that management will spend to obtain the revenues projected in the sales budget.

Allocating Sales Costs

Allocating Sales Costs

Fixed cost Variable cost Semi variable cost

Allocating Sales Costs

Fixed cost: Cost that don’t vary with output level and are incurred whether or not sales effort is made.

Variable cost: Costs that fluctuate directly with level of sales activity

Semi variable costs: Costs that vary, but not in direct proportion to sales volume.

Aamir Ayyaz

Major Selling Cost Categories

SellingCompensation( salary, commission, bonus, incentives)

Travel and entertainment

Prospect seminars

Discounts and Allowances

PromotionCooperative advertising allowances

Catalogs, brochures, price lists

Fairs and exhibits

Samples, models, displays

Selling aids

Major Selling Cost Categories

FulfillmentPackaging and shipping

Billing

Credit

Warranty

Returns

ServicingDistributor and customer training

Technical Counseling

Major Selling Cost Categories

SupportRecruitment and selection

Training and development

Sales meetings

Customer service

Warehousing

AdministrationOffice expense

Telephone and postage expense

Methods of funding sales force

1. Affordable Method2. Percentage of sales method3. Competitive parity method4. Objective and Task method5. Other methods• Bidding Method• Return on investment

Methods of funding

Affordable Method: Sales budgeting method in which management decides what share of revenues above and beyond the cost of goods sold it is prepared to spend on selling and administrative costs, after achieving a predetermined profit level.

Law of diminishing returns: Additional units of input will first produce increasing, then diminishing and finally producing negative returns.

Methods of funding

Percentage of sales method: Sales budgeting in which the funding level is found by multiplying sales revenues by a given percentage.Competitive Parity method: Sales budgeting method based on the competitive practices in an industry.Bidding System: Sales budgeting method in which functional areas compete on basis of expected payoffs.Return on Investment: Rate of return is determined by dividing net income by total assets employed to earn the income.

Syed Muhammad Rizwan

Sales Budgeting Procedure

Situation Analysis

Identification of problems and opportunities

Development of sales forecast

Formulation of sales objectives

Determination of sales tasks

Specification of resource requirements

Completion of projections

Presentation and review

Modification and revision

Budget approval

Tips for winning budget wars

Put things on holdDo not include new projects and venture in the budget during a slow businesses periodDo not try new, untested programsSet priorities and stick with them

Be RealisticIf cuts have to be made, make themShow management that you are willing to do your partIt is better for you to make the cuts then for someone outside the department to mandate them

Tips for winning budget wars

Be FlexibleIf management wants still more cuts, be prepared to bargainFind out what management thinks is most importantBe willing to compromise

Avoid ConfrontationTry to understand upper management’s point of viewDo not disagree with them on every issueRemember to save your best arguments for the really important projects.

Develop corporate mission,

objectives, and strategies

Develop corporate mission,

objectives, and strategies

Call for marketing plans

Call for marketing plans

Develop marketing objectives and

strategies

Develop marketing objectives and

strategies

Call for action plans

Call for action plans

Recommended sales and

marketing plans and resource

needs

Recommended sales and

marketing plans and resource

needs

Evaluate programs and alternatives

Evaluate programs and alternatives

Develop action programs

Develop action programs

Perform situation analysis

Perform situation analysis

Evaluate sales and marketing

plans and make tentative resource

allocation

Evaluate sales and marketing

plans and make tentative resource

allocation

Call for budgetsCall for budgets

Request functional and

developmental budgets

Request functional and

developmental budgets

Integrate, review and approve all

budgets and one year resource

allocation

Integrate, review and approve all

budgets and one year resource

allocation

Submit sales budgets for

approval

Submit sales budgets for

approval

Submit budgetsSubmit budgets

Coordinate, review and approve

budgets

Coordinate, review and approve

budgets

Develop sales budgets

Develop sales budgets

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Sales Budget ProcedureBudgeting cycle

Aitzaz Saeed

Advantages of budgeting

Advantages

Communicatingplans

Think about andplan for the future

Means of allocatingresources

Uncover potentialbottlenecks

Coordinateactivities

Define goaland objectives

Flexibility of sales budgeting

To increase the flexibility of budgeting process some firms have adopted other budgeting approaches.

Rolling budget

Flexible budgeting

Alternative budgeting

Flexibility of sales budgeting contd.

Rolling budget: Budget using periodic updates that eliminate the immediate past period; the budgets for the following period are modified as needed, and another period is added at the end of the cycle.

Flexible budgeting (contd.)

Flexible budgeting: A budgeting process in which a base budget geared to average conditions is drawn up and then adjusted in accordance with the actual sales results.

Flexible budgeting (contd.)

Alternative budgeting: Budgets based on envisioned best case, most likely, and worst case scenario in order to achieve emergency preparedness.

Abdul Haseeb Khan

Benefits of budgeting

a) All levels of management plan ahead.

b) Definite objectives for evaluating performance.

c) Early warning system for potential problems.

d) Coordination of activities within the business.

e) Management awareness of the entity’s overall operations.

f) Motivates personnel throughout organization to meet planned objectives.

Thanks