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Sales Planning
Consider the historical patterns of behavior for your customers,
your markets, your products, and your competitors. The success
of your company depends on the success of your customers.
Company sales will be affected by the economy. Identify
how future economic events will affect your business. This includes
looking at consumer outlook, inflation, taxes, political
events, and the business cycle.
Ask the sales organization for its input. The salespeople
know the customers and markets better than anyone else. Salespeople
are optimistic, by their stereotypical nature. On the other
hand, they have been known to ‘‘low-ball’’ forecasts in order to
minimize quotas. Somehow, given the balance between these
two forces, a consensus forecast by the sales team usually provides
very usable information.
Identify all known or anticipated events that will affect your
market in the upcoming year. This should include competitors
entering or leaving the market and product additions and eliminations.
Industry trade shows are an excellent source of this information:
Look at what is and what is not being featured. What
shows companies take booths at is often an indicator of those
companies’ perceived strategic identity.
The sales and marketing teams should identify the level of
customer service that is necessary if the company is to achieve
a competitive advantage. Strategies involving inventory and the
entire supply chain should be based upon customer service expectations.
Operations Planning
Capacity should be defined based upon the expected product
mix. This will provide insights into pricing decisions and decisions
as to whether to pursue marginal business.
Product mix capability and flexibility are very important.
How rapidly machinery can be changed between products will
provide guidance for determining required minimum orders and
the extent to which discounts should be offered for very large
orders.
The company should consider the number of shifts to be
operated. This depends on both the relative efficiency of each
shift and the size of an ideal production run. If machine changeover
is expensive, working four 10- or 12-hour shifts will be more
cost-effective than working five 8-hour days. Overtime can be
built into the schedule.
Technology can make a major contribution to improving the
efficiency of the overall operation. Establishing computerized
hookups among customer orders, machine and workforce schedules,
and raw material logistics will:
Improve customer service
- Accelerate billing and cash flow
- Reduce work-in-process inventory and time
- Reduce raw materials inventory
- Usually pay for itself in less than a year
- The capital budget can be prepared after all of the previously
mentioned analyses have been performed.
- You should consider outsourcing less important resource consuming
operations. This will free up assets, cash, and people
for more important activities.
A Guide to Better Budgets
Start simple.
Have each function and area of responsibility prepare its
own budget, consistent with corporate goals, objectives,
constraints, and policies.
Recognize that effective budgets require senior management
approval and the endorsement of the organization.
Understand that having a budget improves the performance
of the entire organization and each of its parts—
really.
Understand that a budget is developed to ensure that every
department head is working toward the same goal, with
knowledge of the department’s resources and constraints.
Recognize that the budget department does not create the
budget. It is simply a coordinator, consultant, and adviser.
Arrange educational meetings to ensure an understanding
of the process and the expectations for it. Do this at least
twice during the process.
Make certain that interdepartmental relations are coordinated.
Departments cannot perform well without the cooperation
of other departments. Make certain that these
interdependencies are properly documented.
Ensure that expenditures above a specific threshold
amount that are included in the budget are supported with
proper documentation and financial analysis.
Incorporate into the budget procedure specific requirements
covering approval for nonbudgeted expenditures
and cost overruns.
To sell the budget concept, select one department or profit
center manager to convey the value of developing an intelligent
budget. Demonstrate how the budget has improved
the performance of this manager’s organization. The word
will spread among the manager’s peers.
Express budget procedures in writing. Document corporate
targets, policies, and constraints and convey them to
everyone who is involved in the process. Update this documentation
frequently.
Provide each involved department with information on the
department’s past financial and statistical history, known
economic factors, and the accounting chart of accounts in
order to properly prepare the department for effective participation.
Classify the expenditures of individual departments care Business
fully. Do not arbitrarily allocate common costs to individual
profit centers.
Budget product and service costs on a per-unit basis if possible.
Be realistic.
Do not create theoretical models that make accountability
unachievable.
Prepare budgets that incorporate alternative environments
and competitive factors. Have a fallback plan available for
emergencies; identify best- and worst-case scenarios. This
enhances the thought process.
Base the sales forecast on realistic expectations. Like all
other budgets, it should be achievable, but a challenge.
Establish production plans in accordance with a detailed
forecast. Incorporate purchasing and inventory strategies
and product pricing expectations.
Incorporate the cash flow improvements from the capital
expenditure budget into the operating budget. These are
interrelated parts of the planning process.
Develop and share the positive and negative elements of
past budget efforts into the current process. Learn from
both the successes and the mistakes.
Make sure that reports of actual performance are provided
to responsibility centers in a timely manner, with the appropriate
level of detail.
Never forget that a budget and its forecast components are
estimates. Precision does not count.
Improve the quality and effectiveness of the process continuously.
Make sure that everyone knows that you are focusing
on this issue. Solicit and accept feedback from
participants. | 
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