The sales budget is part of a set of budgets better known as the master budget. The purpose of the latter is to structure the entire budgetary process. As discussed later in this article, several budgets flow from the sales budget. This is one of the pillars of the process.
Free Sales Budget
What Is a Sales Budget?
When we have established the sales forecasts and we can estimate at what rate the accounts receivable will be cashed, then it is possible to establish the sales budget.
The sales budget begins with the calculation of the total forecasted sales and leads to the calculation of the total cash receipts relating to the sales of the current period and the recovery of the sales of the previous periods.
When completed, the sales budget allows the calculation of the following budgets :
The image above shows the links between the sales budget and other budgets. It should however be noted that other budgets exist. The set of all budgets is represented by the master budget.
How to Establish Sales Forecasts?
Before you start learning how to make a sales budget, it is useful to understand that it directly depends on the sales forecast.
To establish sales forecasts, one must focus on the internal and external factors of the company. The goal is to understand how these factors will affect the company’s projected sales.
Sales forecasts are quite complex depending on the industry. They are always possible, but there is a margin of error that must be taken into consideration.
If your business is a start-up, then it is virtually impossible to predict your future sales unless you have signed certain sales contracts. All other companies can attempt to predict their future sales based on their experience and the degree of certainty of future sales.
Nowadays, companies continue their process of technological innovation and use more and more complex methods to obtain more precision in their sales forecasts. What is increasingly common is the use of machine learning.
Most companies rely on their databases collected over time to make predictions. Companies have more and more accessible data and they are generally not able to process all of it, which leads to cutting corners.
By understanding the data, followed by good data preparation and ending with data modeling, the business can stand out enormously. As we say in English “Knowledge is power”. By extracting the most important data through modeling generated by machine learning and data mining, your company will be able to make better decisions about the strategies used in the management of sales, marketing, costs, logistics, hiring, etc.
All parts of your business will be more and more optimal through strong sales prediction because the entire strategy of a business directly depends on its projected sales.
How to Make a Sales Budget?
It is quite simple to make a sales budget when you have finished defining the sales forecast and know the collection times for accounts receivable. Essentially, the sales budget provides the sum of periodic receipts.
Generally, making a sales budget requires setting up a structure for forecasting the sales receipts that take place in the current and prior period.
It is, therefore, necessary to forecast the collection times for accounts receivable in addition to the forecast sales. We, therefore, detail how to make the calculations, and this, from the Excel file that we have provided.
All the boxes in yellow of this file are to be filled in, the others will be filled in automatically.
Calculation of Total Sales
The free Excel file we provided shows the above calculation. For the sake of simplicity, we present here only four months, but the file allows the calculation for the whole year.
You just need to add the selling price per unit, in addition to the expected sales. The sales total will be calculated automatically.
This part is quite simple. On the other hand, the complex part is to establish good sales forecasts and have good data to forecast receipts from accounts receivable.
Accounts Receivable Collection Time
By specifying according to which percentage the sales are recovered, the Excel file will automatically calculate the foreseeable receipts. Make sure the percentages add up to 100%.
Collection Forecasts
This first photo is small because it represents all of the collection forecasts. Now let’s break this image down into a few chunks:
- Anticipated Past Accounts Receivable: This box relates to the company’s most recent financial statement. Another sheet named “Beginning balance sheet” in the Excel file allows you to insert your balance sheet there. Thus, the amount of accounts receivable shown in the “Starting balance sheet” would be automatically linked to the sales budget. In addition, customer accounts will be recovered according to the recovery period percentages in number of days that you have inserted.
- Sales (monthly): The sales collected during the month depend on the percentages you added in the “% of accounts receivable collection time by when they are collected” section.
- Total receipts (monthly): This is the sum of sales collected during a month. Some sales are made on credit. When they are covered, then the company collects the amount of the previous sale.
This second image shows months 7 to 10. We draw your attention to the boxes in yellow. This allows you to add anticipated past customer accounts that are older than 150 days. Quite simply, because we have limited the part “% of the period of collection of accounts receivable according to when they are collected” to a maximum collection of 150 days.
Free Sales Budget
Bibliographic sources:
- Patnaik, S., Yang, X. S., & Sethi, I. K. (Eds.). (2021). Advances in Machine Learning and Computational Intelligence: Proceedings of ICMLCI 2019. Springer.
- Garrison, R. Libby, T., & Webb, A. (2016). «Fondements de la comptabilité de gestion», Chenelière Éducation.
- Cheriyan, S., Ibrahim, S., Mohanan, S., & Treesa, S. (2018, August). Intelligent sales prediction using machine learning techniques. In 2018 International Conference on Computing, Electronics & Communications Engineering (iCCECE) (pp. 53-58). IEEE.
