Page 177 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
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ment can make in the business and the amount of resources
that it may purchase to run the business.
For many managers, this is a frustrating way to begin. Not
only must they take the time to prepare a budget, but they have
to start with the one thing they can neither control nor accurately
predict—the amount of products and services their customers will
buy from them during the budget period. Still, that’s how it’s
done, except in the smallest of companies, companies with aging
owners who have become highly risk-averse, or some profession-
al service firms where the primary focus is on covering their fixed
costs. Such narrowly focused thinking is not consistent with build-
ing a successful, forward-looking company, but for some it repre-
sents protecting what they have, a primary concern.
If we accept the value of beginning with a sales forecast, the
very next question is usually “How do we do it?” How

Let the Salespeople Do It, Henry!
Whatever the structure of the company, the sales forecast
should come from the people who are directly responsible
for bringing in the sales, the company’s sales force.While top manage-
ment may feel it’s important to announce their sales desires, hopes,
and expectations, it’s a very risky business to build those goals into the
company budget without the validation of the people who actually sell
the goods or services. Salespeople know the market better than any-
one else, typically, and they know what customers want and don’t
want, even if they don’t always communicate it effectively to manage-
ment. Besides, they must buy into the sales budget, just as any employ-
ees should take personal responsibility for any goal assigned to them.
Otherwise, they may well consider it “management’s budget” and not
theirs.The result is often failure to achieve the plan.
This approach has some risks, however. Salespeople may want to
set less aggressive sales goals because they don’t want to be evaluated
against target they’re not sure they can hit.Also, if your salespeople
are primarily outside sales representatives rather than employees,
their sense of your market and their commitment to the company
may influence the care with which they prepare their estimates.These
risks do not, however, lessen the importance of having the salespeople
adopt the sales forecast as their own.