Monitoring Sales, Budgets and Profit

Sales:

Sales generate revenue for a firm. Sales management control involves comparing budgeted sales against actual sales.

Sales can be broken down into various categories; such as sales of a specific product / service type, or sales in specific regions or stores, or sales generated by a specific employee.

Sales analysis may result in product / service deletion (poor product?), the closure of underperforming stores (wrong market?) and the training of underperforming staff. Alternatively, it could mean adding more of a product / service, opening additional stores and rewarding high performing staff.

Sales analysis should be undertaken on a monthly basis to ensure the firm has the flexibility to change quickly in response to performance.

Budgets:

A budget is a firm’s overall financial projections of the future. A budget outlines how a firm will use its financial resources to meet its strategic goals. 

Budgets include all forecasts (revenue, expenses, profit levels).

Budgets are useful for easy monitoring of financial performance and goals, a basis for the administrative control of a firm (making changes to lift performance), providing direction for sales effort, planning production levels, controlling stock levels, setting prices for goods and services, determining financial requirements (equity / debt financing), controlling expenses and determining ways to control production costs.

These budgets must be compared to actual performance to see if business owners are accurate in their forecasting. 

Budgets can be revised to better match reality.

Profits:

Profit is the difference between revenue and expenses. 

It is the main purpose for the existence of a firm. A business that continually makes losses should be closed.

Profit is a factor of both revenue and expenses. Finding ways to increases revenue (selling more units, lifting unit price) and ways to reduce expenses (cheaper supplier, more efficiency) will result in the maximisation of profit.

Profit levels are an indication of firm performance.

Monitoring profit levels is critical for new business owners. It is rare for new businesses to make a profit in their first few years of operation. Business owners must be aware of how to lift firm profitability to make their efforts worthwhile.

Evaluating a business’ potential to become profitable is important for a business owner as time, money and effort can be wasted on a poor business.