Page 179 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
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Once finished, the sales estimate will be presented to man-
agement, who will evaluate its viability in terms of the following:
• A reasonable balance between aggressiveness and con-
servatism. Did the sales manager push for a little more
than was attainable easily without creating expectations
that no one can reasonably meet?
• The likely acceptance of the estimate by the salespeople,
balanced against the ability of the company to make an
acceptable profit if the estimate were adopted and met.
• The abilities and resources available to the production
side of the company to deliver the goods and services
outlined in the estimate.
If the sales estimate is deemed acceptable, it will become
the sales budget for the company. All other budgets will then
have to take into account the resources they’ll need to support
the sales budget. If it’s not yet acceptable, it likely means a
back-and-forth process of questioning, additional research, and
negotiating between management and the sales organization
until an acceptable revenue budget is adopted.

Budgeting Costs—Understanding Relationships That
Affect Costs
Budgeting, in its simplest form, is an attempt to estimate what
will happen to a company’s financial condition if it sells a cer-
tain quantity of goods and services and runs its business in sup-
port of that sales record. Managers want to know what they will
have to spend in order to sell the quantities they have budgeted
and exactly what they will spend it for. This sounds simple
enough—except for this principle, perhaps an obscure extension
of Parkinson’s Law:
There is always a good reason to spend money.
As Parkinson might have said it, the need for money
expands to consume all the available funds. In other words,
there’s always a logical reason to approve a given expendi-