The starting point for a budget is to estimate the revenue.
Revenue might be;
- the sales of a product (for a trader)
- the hours of service provided (for a service provider like a doctor or hairdresser)
- the sales of a finished good produced from raw materials and labour (for a manufacturer such a a factory)
The important thing is revenue must be forecasted or predicted.
There is an important relationship to understand!
quantity sold x price = sales revenue
Now rearranging this;
price = sales revenue/ quantity
This is a Sales Budget where the business has three products A, B and C.
Now you understand the sales price x sales quantity relationship you can take this further by budgeting for longer periods.
This is a Quarterly Sales Budget for the months of January, February and March and the total of the quarter.
When constructing a sales budget, forecasting might mean that you build on a known figure and increase or decrease that to make a prediction of future sales.
The sales or revenue budget starts the budgeting process.
Once revenue is forecasted, managers can then plan for the business activity of purchasing, producing and offering a service.
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