Sales budget is one of the most important and major component of a Master Budget. When preparing a budget, I usually starts with sales. Most of the revenues and expenses are measured against the sales to ensure profitability and avoid excessive spending.
A very easy method of forecasting monthly sales figures is by taking the total sales forecasted for the year divided by 12 months. If total forecasted sales for the year is $120,000. The easy way to break it down by months is by dividing it over 12 months equally.
$120,000 / 12 months = $10,000 per month. Assuming that the financial period starts from January the details will be as follows:
TABLE A
|
Months |
Forecast |
| January |
$10,000 |
| February |
$10,000 |
| March |
$10,000 |
| April |
$10,000 |
| May |
$10,000 |
| June |
$10,000 |
| July |
$10,000 |
| August |
$10,000 |
| September |
$10,000 |
| October |
$10,000 |
| November |
$10,000 |
| December |
$10,000 |
A more accurate way of forecasting is by apportioning the Total Sales Budget in accordance to the month trend. Every business has its own business cycle. Let take a departmental store as an example for illustration purpose. Departmental stores’ sales usually peak just before festive days such as Christmas, New Year and school holidays.
So we assumed that historically the department store sales trend is as follows. And by applying the month sales trend, you will get a more realistic month Sales Budget as follows:
TABLE B
|
Sales |
||
|
Month |
Trend % |
Budget |
|
January |
15.0% |
$18,000.00 |
|
February |
5.0% |
$6,000.00 |
|
March |
10.0% |
$12,000.00 |
|
April |
5.0% |
$6,000.00 |
|
May |
5.0% |
$6,000.00 |
|
June |
10.0% |
$12,000.00 |
|
July |
5.0% |
$6,000.00 |
|
August |
5.0% |
$6,000.00 |
|
September |
10.0% |
$12,000.00 |
|
October |
5.0% |
$6,000.00 |
|
November |
10.0% |
$12,000.00 |
|
December |
15.0% |
$18,000.00 |
|
Total |
100.0% |
$120,000.00 |
You can compare both the above sales budget and you will find that the table B is more realistic than table A.
