Empower Your Sales Budget Planning for Administration with airSlate SignNow

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in this video we're going to discuss what a sales budget is and how you would put together a sales budget for a firm so if you remember from our video about the master budget a sales budget is actually the foundational budget when we talk about making other budgets for the firm so this is the foundation because we use it to make other budgets for example at the production budget and ultimately the budgeted income statement so we really want to get our sales budget right we don't want to have any issues putting it together and what we're going to need to start our sales budgets we're going to need some information from the marketing department so namely what we're going to need to know at a minimum is a couple things we're gonna need to know the quantity of units which I'll just call Q and then we're going to need to know the selling price for those units right so we say okay are we going to sell 500 units and at what price and we'll do this on a quarterly basis but you could do it on a month-to-month basis too so let's just let's just go right through an example so this is a little less abstract for you so let's say that you own a bicycle shop and to make things easy to understand let's just say you just sell one type of bicycle you're just going to have one price and we're going to look at it on a quarterly basis so we'll say I've got Q 1 as quarter quarter 1 Q 2 is the second quarter and so forth and then we're going to have the annual total for that for the year so when we think about this sales budget we're going to need to know okay so we got our Q this is right here the units to be sold what I mean by that is we're saying okay and quarter 1 what does our what what number of bicycles does our marketing department estimate we're going to sell and we're going to say that's 50 right now how they come up with that 50 that's beyond the scope of what we're doing with this budget right we're doing this from an accounting perspective that would be a marketing forecast issue all right so they've done their forecast and they say Q is fifty four quarter one we're going to sell 50 bicycles and then in quarter two they say three hundred we think we'll sell quarter three is two hundred and quarter four is one hundred now I've changed up the numbers for each quarter just to kind of reflect that there's a little bit of seasonality for certain types of businesses now I don't know a lot about the bicycle industry but I would assume that more people buy bicycle in the warmer months of the year so let's say that this bicycle shop is in North Dakota or something people are going to run out in the second quarter when it's starting to get warm and say let's buy bicycles so we can ride them this summer whereas in January when it's really cold they don't buy as many bicycles so so in any event we've got different totals for for each quarter right in the terms of number of units that we expect to sell the number of bicycles units are just one unit is one bicycle but then we need to know the selling price per unit right and that's our P remember we said Q and P we need to know from the marketing department we didn't know what is the selling price for each bicycle so let's say 300 dollars this bicycle that we sell is three hundred dollars and it's that same price in every quarter so then when we get to the annual we don't we don't just sum up these prices we just take in to say it's three hundred dollars because throughout the year it was three hundred dollars so but when we actually look at this annual or your total for the number of units to be sold we actually do sum up those units okay so this is this is basically this 650 is throughout the year we're going to sell 650 bicycles and then our price in each quarter and for the year happens to be three hundred dollars a bicycle it never changes so now we can go and say okay what is our forecast for sales in terms of sales dollars right when we think about in terms of units this is our sales forecast but now in terms of sales dollars we multiply Q times P and that's going to give us these numbers right here so just walk you through briefly one and you can figure out the rest quarter one we're going to sell 50 bicycles that's what we budgeted and we're going to sell them at three hundred dollars apiece so then we take 50 times three hundred and that's going to give us fifteen thousand dollars and then so on for each quarter quarter two we just take the three hundred times three hundred we're selling three hundred bicycles or three hundred bucks a pop and that gives us 90 thousand dollars and I'll let you work out the rest now you might say okay well the sales budget is done that was easy well a lot of times you have also a schedule of cash collections that will be included with this sales budget this is part of the sales budget you even though it says cash you might be thinking wool hey doesn't this go in the cash budget but actually a lot of times we will put this right in the sales budget because you've got the sales figures right here and you can go ahead and estimate how the cash is going to be collected from those and so you might be thinking okay well what are you what are you even talking about here when we're talking about schedule of cash collections what so so let's put it this way so in quarter one right here let's just drill down on this quarter one we've estimated we're going to have four ket or we forecasted $15,000 in sales from our bicycles right now we need to know of that $15,000 how much is going to be collected in that same quarter in quarter one how much is like cash sales for example like obviously cash shells cash is collected at the point of sale the person just pays you for the bicycle and then sometimes though somebody let's say you're selling bicycles to bike shops and you manufacture them and then the bike shop the bike shop you might just build them and say okay pay me in 60 days or pay me in 120 days or so forth you might have some credit terms and so then in that case some of this $15,000 that you sold you might not collect until the second quarter even though you sold the bicycle in the first quarter you collect it some of the money in quarter two so now we need to have some kind of decision rule here where we say okay when we make a sale in a given quarter how much is collected in that quarter right then and how much is collected in future quarters so what our decision rule will be is this so let's may let me change change colors here let me just stick with blue so we'll say that in the quarter in which you sell it you in so like let's say in quarter one how much is that fifteen thousand do we collect we'll say sixty percent and so I'll just call those cash sales percent cash sales and we'll say that that's sixty percent right now of course that doesn't all have to be cashed right some of it could be that you collect in the same quarter but like they paid you the next week or so but let's just make this simple right let's just say it's cash sales or collected in the same quarter so I'll even just put it in parenthesis same quarter okay now let's say that the other forty percent right because we got sixty here and we need to add up to one hundred to account for all everything that's going on here so let's say collect it collected next quarter apologize my writing is getting small there but I'm gonna make this 40% big so you can see that so next quarter is forty percent right same quarter is sixty percent so I'm gonna we're talking about this abstractly but once we go through the schedule of cash collections I think it'll be easier for you to understand so now we're going to use the figures from our sales budget that we computed above to come up with our schedule of cash collections so before we get into that before we start doing any calculations though we need to know something hey wait a minute we're starting with cash off there some cash collections off the bat right so let's say that our account receivable our beginning balance of our account receivable is $10,000 all right now what you're saying well how does you making things more complicated what's going on here okay just this will slow down and we'll work through this so we just said so that we're not collecting a hundred percent of our sales in the same quarter that we make the sale right we just said well forty percent when we make when we make a sale forty percent of the time it gets collected the very next quarter so what is this this 10,000 that's the that's the forty percent from the previous quarter right from last year that fourth quarter of last year there was 10,000 that didn't get collected right so it's going to get collected in quarter one right quarter one and I'm just gonna if we just imagine here this column here is quarter you know maybe I should even just just put it in a little here's a q1 so this is quarter one we've got quarter two quarter three quarter four and then again the but that's a year so in quarter one we're going to collect ten thousand and happy and again you say how do we know that it's ten thousand well it's from the previous year this this beginning balance of accounts receivable right when you don't collect cash right then you debit accounts receivable remember so that accounts receivable beginning balance January 1 you saying oh we had ten thousand last quarter that we sold but didn't get collected it's going to get collected in quarter one right now so that's why this beginning balance of accounts receivable is relevant so we list that ten thousand under cash collections that's what this is a schedule of cash collections for each Porter right so we say okay last year we had a leftover ten thousand that's going to get collected Quarter one now we need to know let's look at each each to get the rest of these quarters here to get all this information which is going to be coming out we need to look at each quarter of this year we've dealt with last year right this is the leftovers let's think of it that way now we say okay Quarter one this 15 thousand right so sixty percent of it is going to get collected immediately right that's the assumption we made right we just say same quarter 15 thousand gets it collected immediately so when we see this q1 sales we're talking about that fifteen thousand and we say okay sixty percent of it gets collected in the same quarter so what do we do we take sixty percent or 0.6 and multiply it by fifteen thousand and what does that give us that gives us nine thousand dollars and we're going to write that in here and let me let me change back maybe to purple so nine thousand dollars is right here now that nine thousand and I really want to emphasize this so I'm going to put a little thing here it's going to have a lot of writing but so we're going to have that's the 60 percent times 15,000 that's what that is all right so that 15,000 we say 60% and that's going to give us $9,000 now we say well but the quarter one we've still got some leftovers right we've got 40% that is not collected in quarter one it's not collected here when is it collected next quarter right we just said 40% of it is just going to be collected next quarter so what we do is say 40% so now we take point four or forty percent times the fifteen thousand to take care of that leftovers and that's going to be six thousand right and that's going to we're putting that under this cue - what is this saying this is just here right here this is fifteen thousand dollars right and this is fifteen thousand and we're just saying that nine thousand of the fifteen thousand gets collected in quarter one and six thousand gets collected in quarter two that's that's all we're doing here I know there's a lot of numbers but that's it's really just that basic so just go ahead and rewind if that is a little confusing to you and you'll get it eventually so now we go to quarter two sales we're talking about our the sales we made in quarter to ninety thousand how do we account for that in terms of when the cash is collected so again I'm going to go with a little faster to it this time so ninety thousand times sixty percent okay ninety thousand times sixty percent is going to be fifty four thousand and I'm going to put it under quarter two and the reason is that this is quarter two sales collected in quarter two okay now we say quarter two sales 90,000 that are going to be collected the next quarter which would be quarter three right here what's going to be collected in the next quarter well forty percent of that 90,000 right so 40 percent of that ninety thousand is going to give us 36,000 so just briefly what are we saying here we've got if you add up fifty four and thirty six thousand you'll have 90,000 there we've got ninety thousand was our total sales recorder - and so we're just saying how does when is it going to get collected fifty four gets collecting quarter to thirty six gets collecting quarter three now if we follow those same things I'll just briefly four quarter three sales 36,000 will be collected in quarter three and then twenty four thousand will be collected in quarter four and then four quarter four let me let me scroll down a bit quarter for sales 18,000 will be collected in quarter four now we don't need to worry about what happens to the leftover of quarter four sales because we're just looking to budget for this year we'll deal with that next year that'll be the beginning balance our ending balance of account receivable be the beginning balance the next year and then we'll have that leftover so next year if you want to think about this we say okay well forty percent of that thirty thousand so that's twelve thousand that will be our ending balance of account receivable so next year if we were going to do this budget for next year we'd have a count receivable being a balance of twelve thousand right so that's what's gonna happen to that but you don't have to think about that if that's too much too complex for you okay so we're just saying here quarter for sales eighteen thousand is collected and quartered four and then the rest will be leftover carried over to the next year so now we can go and we can write our totals for the year so this just should just add up to fifteen thousand of course it looks kind of a weird way I wrote that and alright ninety thousand sixty thousand and then eighteen thousand okay but now what's really important here what's really we think about the takeaway we look at these total cash collections I hope you can see that there maybe let me scroll down a little bit more total cash collections so we say quarter one we're going to add up so we're going to collect this ten thousand of account receivable from last period and then the nine thousand that we did from sales and quarter one that we collected in quarter one add those two together ten thousand plus nine thousand is nineteen thousand and then we just go through these columns right so there's columns here we just go through those and some those columns so six six plus 54 we're going to have 60,000 and so on and what this is telling us why this is important is then we can use this when we think about our cash budget and say okay we're collecting 19 thousand dollars in cash in quarter one would like for example in quarter three were collecting seventy two thousand dollars in cash so we might say wow wow hey this is important because when we go to do our cash budget we can say well we're really not collecting a lot of cash in that first quarter so we might have to do some kind of financing or get some working capital to hold us over until we get to those summer months when we start rolling in the cash