Q-1.

Explain Sales Budget

Every company needs a sales plan. Without a plan, it’s easy to lose track of sales
goals, lose momentum, and ultimately, lose money. Sales budgets can help—they
make it easier to form concrete sales plans and greatly simplify sales management.

In this article, we’ll cover what a sales budget is, why it’s important, and how to best
create one for your business. We’ll also explore a few examples of sales budgets for
different tracking periods.

What is a sales budget?

A sales budget is a financial plan that estimates a company’s total revenue in a
specific time period. It focuses on two things—the number of products sold and the
price at which they are sold—to predict how the company will perform.

A sales budget isn’t the same as sales forecasting, which is the process of
estimating future sales revenue. But a solid sales budget may be used to inform a
sales forecast. A sales budget is also different from a sales expense budget, which
focuses on company expenses over a certain period of time.

What is a sales budget used for?

The sales budget is a planning tool that allows companies to manage resources and
profits based on expected sales. It takes into account previous sales patterns and
budgets for similar time periods so that each department can have a big-picture idea
of where they stand financially. This helps companies be more efficient in reaching
their goals and maximizing their profit.

The sales budget is also invaluable when it comes to setting realistic targets. For
instance, a sales team may have a sales goal of increasing customer subscriptions
by 50 percent, but the sales budget will keep expectations leveled by reflecting an
annual increase of 20 percent. This doesn’t mean 50 percent isn’t achievable; it
simply means that when budgeting based on revenue, the 50 percent should be a
bonus, not an expectation.

Importance of a sales budget

Sales budgets are crucial for managing expenses—no department wants to exceed
their allotted budget—as well as setting sales goals. Clear, specific goals drive
teams forward as they work together to achieve growth, even if it’s a simple 1-
percent increase in sales productivity.

How to make a sales budget

Now that you understand what a sales budget is and why it’s important in your
business, let’s explore how to make one.

What’s included in a sales budget?

When diving into sales forecasting or budget preparation, it’s important to ensure
your components are prepared and accurate before starting your plan. Depending on
the size of your business, you may have a larger or smaller sales budget
spreadsheet than others, but all sales budgets should include three key elements:

1. Income statement: contains the net income of the company and gives a
general financial overview of how the company is doing.
2. Balance sheet: lists a company’s liabilities, assets, and equity for a given
budgeting period.
3. Cash flow statement: reports cash received and cash spent for a certain
budgeting period.

Once these three documents are compiled, you’re ready to prepare your sales
budget
2.Explain Working Capital and its Sources?
Meaning:

Working Capital is the capital which is used to carry out the day-to-day business activities. After
estimating fixed capital requirement of the business firm, it is necessary to estimate the amount of
capital, that would be needed to ensure smooth functioning of the business firm. A business firm
requires funds to store adequate raw material in stock. A firm would need capital to maintain
sufficient stock of finished goods. In actual practice goods are sold out in cash or on credit. Goods
sold on credit do not fetch cash immediately. Firm will have to arrange for funds till the amount is
collected from the debtors. Cash is also required to pay overheads. Since uncertainty is always a
feature of business some excess cash also should be maintained to meet unexpected expenses.
Thus, a business firm will have to arrange capital for the following

A] for building up inventories

B] for financing receivables

C] for covering day to day operating expenses.

The capital invested in these assets is referred to as ‘working capital’. The concept of working capital
is viewed differently by leading authorities. Some authorities consider working capital as equivalent
to excess of current asses over current liabilities. Working Capital is a business tool that helps
companies effectively make use of current assets and maintain sufficient cash flow to meet short-
term goals and obligations. By effectively managing working capital, companies can free up cash that
would otherwise be trapped on their balance sheets. As a result, they may be able to reduce the
need for external borrowing, expand their businesses, fund mergers or acquisitions, or invest in
R&D.

Sources of Working Capital:

There are two types of sources for working capital financing:

short term and long term.

A] Short-term Financing Sources:

Banks are an invaluable source for short-term working capital financing.

1. Overdraft Agreement: By entering the overdraft agreement with any bank, you can borrow a
certain limit without requiring any further discussion. The bank may also ask for security in the form
of collateral and even change daily interest.

2. Accounts Receivable Financing: Many banks, as well as non-banking financial companies, may
provide you invoice discounting facilities. The company even takes commercial bills that make the
payment minus a small fee. After that, the bank collects the due amount from the customer on the
due date.
3. Customer Advances: There are many financial institutes that insist the customer make an advance
payment before providing the services or selling goods. It is true especially when dealing with large
orders.

4. Selling Goods on Instalment: Many financial companies even allow customers to make payments
in instalments. So instead of making larger payments, customers can make regular monthly
payments to ensure a constant flow of funds that come into the business without choking up the
receivable accounts.

B] Long-term Financing Sources: For making a working capital last for a long duration, they need to
think of long-term financing sources:

1. Long-term Loan from any Bank: Many companies go for a long-term loan from any bank that
offers them to meet working capital requirements for two, three or more years.

2. Retain Profits: Instead of investing in new ventures or making dividend payments to shareholders,
many companies retain some part of their profits to make use of the working capital. This way they
can be self-sufficient and don’t have to take a working capital loan, pay interest or incur losses on
the discounted bills.

3. Issue Debentures and Equities: In extreme cases, if the business has fewer funds or when they are
trying to invest in large-scale ventures, they might think of bonds or debentures or equity stock. This
is done only when huge funds are needed
Q-3. Explain Advantages and Limitations of Budgetary Control.
Advantages of Budgetary Control:
Important advantages of a budgetary control can be
summed up as follows:
1. The most important advantage of a budgetary control is to enable
management to conduct business in the most efficient manner
because budgets are prepared to get the effective utilisation of
resources and the realisation of objectives as efficiently as possible

2. It lays down an objective for the business as a whole. Even though

a monetary reward is not offered the budget becomes a game—a
goal to achieve or a target to shoot at—and hence it is more likely to
be achieved or hit than if there was no predetermined goal or target.
The budget is an impersonal policeman that maintains ordered
effort and brings about efficiency in result.

3. Everyone working in the concern knows what exactly to do

because budgetary control lay emphasis on the staff organisation. It
ensures that individual responsibilities are clearly defined and that
the required authority commensurate with the responsibility is
delegated so that buck passing may be prevented when the
budgeted results are not achieved.

4. Budgetary control takes the help of different levels of

management in the preparation of the budget. Budget finally
approved represents the judgment of the entire organisation and
not merely that of an individual or a group of individuals. Thus, it
ensures team work.
5. Management by exception is possible because the comparison of
actual and budgeted results points out weak spots so that remedial
action is taken against weak spots which are not in conformity with
the budgeted performance.

6. It ensures effective utilisation of men, materials, machines and

money because production is planned according to the availability
of these items.

7. It is helpful in reviewing current trends in the business and in

determining further policy of the business because current and
future trends are studied in the preparation of the budget.

8. Budget acts as a measure of efficiency of departments and

persons working in the organisation because budgets provide a
yardstick against which actual performance of departments and
employees can be compared.

9. Budgetary control creates conditions for setting up a system of

standard costing.:

10. It helps in promoting a feeling of cost consciousness and in

restricting expenditure to the minimum. Thus, wasteful expenditure
is avoided and expenditure beyond budgeted figure is not incurred
without prior approval of the higher authority.

11. It enhances the standing and credit of the undertaking with the
government and the banks because an efficient technique of cost
control is used.
12. Functions of planning, co-ordination and control can be better
performed with the help of the budgetary control.

Limitations of Budgetary Control:

Budgetary control as a management control device suffers
from the following limitations:
1. It may be impossible to achieve the budgeted targets as estimates
and forecasts relating to the future made in the budget can never be
perfectly accurate for the simple reason that future is unpredictable.

2. In rapidly changing conditions it may not be possible to achieve

the budgeted targets. Budgets may have to be revised from time to
time, but frequent revisions may prove to be a costly affair.

3. Budgets may serve as constraints on managerial initiative

because every executive tries to achieve the budgeted targets. It
tends to bring about rigidity in control.

4. Correlation and coordination of various budgets is expensive; so

small organisations cannot afford the employment of budgetary
control as a cost control technique.

5. Budgetary control may lead to conflicts among functional

executives because every executive may try to get a larger share of
budgetary allocation, shirk responsibility and blame others for
pitfalls. The success of budgetary control depends upon the team
work which may be lacking in the organisation.

6. Budget is only a tool of the management and is not a substitute of

management.
7. Badly handled budgetary control system with undue pressure and
lack of regard to behavioural aspects may cause antagonism and
may lower morale of the employees.

8. Budgets may be developed keeping in view existing organisation

structure which may be inappropriate for current conditions.