Salespeople underestimate how much they spend and overestimate how much they sell. Andy Cohen, Sales & Marketing Management, October 1996 The budgetary process and its offspring, the budget, are the very core of the planning-control structure of most large companies.
At the end of each year, top management of most firms requires the organization to prepare a plan for operations during the coming year. Such operational plans are developed by each operating unit (marketing, sales, production, finance, research, etc.) according to the basic sales and profit targets for the year given them by top management. Each department head then develops a detailed plan of what the unit must do to achieve these goals. The plan also includes a detailed itemization of the costs of doing those things-the projected costs. The projected costs ultimately are the basis for the budgets discussed. The budgetary process is a lengthy, time-consuming managerial task. It is not much fun. But it must be done!
The sales forecast provides the basis for developing company operating plans. Everything is keyed to the level of expected sales activity. The budgets are essentially based on the sales forecast. If the forecast is wrong, the resulting budgets will have to be revised often to reflect actual sales results.
A budget is simply a tool, a financial plan that an administrator uses to plan for profits by anticipating revenues and expenditures. By using various planning procedures management hopes to guide operations to a given level of profit on a certain volume of operations.
