The sales revenue budget represents the gross income you expect to make from selling your products and services during the period covered by the budget. The sales budget is also where you need to start in the budget creation process.
The sales revenue budget is often difficult for entrepreneurs to calculate. This is especially true for start-up business with no historical sales history to analyze. This is why I strongly recommend that every small business owner and entrepreneur prepare and maintain a business plan. A business plan is not a onetime activity, but rather a living document that reflects the current state of your business. Preparing a business plan forces you to analyze, contemplate, and document every aspect of your business, including anticipated revenue. I regularly refer to a client’s business plan while preparing their budget.
Constructing the sales budget is a two step process. The first step is to estimate the number of units you expect to sell or the number of customers you expect to serve during the period. The second step is to determine the price you will be charging for those units or to serve those customers.
Most small businesses owners and entrepreneurs are optimistic about their sales projections (you wouldn’t be an entrepreneur if you weren’t optimistic). I strongly recommend creating a best case and worst case units to be sold or customers to be served estimate. You can then use a figure that falls somewhere in between the best and worst case as the most likely sales number for your budget.
In my next post, I’ll discuss the second step in preparing a sales revenue budget.
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