Think a Sales Expense Budget isn't necessary? Jane's story will convince you otherwise
A Sales Expense Budget is a budget that lists the type of sales expenses you expect during the budgeted period.
Sales expenses are expenses directly related to selling a product.
If you think a sales budget isn't necessary and believe you'll just deal with expenses as they come along, you need to change your views. We hope Jane's story will sway you so you don't lose control when it comes to your expenditure.
How to set up a good control environment
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It's management's responsibility to emphasise the importance of the control system to all the staff members in the business. Management integrity (honesty, ethical standards, etc.) is key. The bottom line is that if management doesn't take internal controls seriously, all efforts will fail.
Use the checklist in chapter I02 of the Practical Accountancy Loose Leaf
to ensure you have the right internal control environment in place to protect your business. In particular, you'll learn how to ensure your business has a sound control environment and how to prevent fraud in your Internet banking and your inventory.
Here's what else you can find in the Practical Accountancy Loose Leaf
Take a look at Jane's story if you think a Sales Expense Budget isn't necessary
Jane owns a skincare company in Cape Town called 'Plain Jane Skincare'. It manufactures a facial cream called 'Look like Jane'.
She owns a small warehouse where she and her five employees manufacture the facial cream. Jane plans to expand her distribution to supply all cosmetic dealers in South Africa with her 'Look like Jane' product. She hires Angie as the sales manager in Cape Town who works on a commission basis.
Jane's operating expenses are telephone costs, warehouse rent, sales commission, travelling costs and accounting fees.
She has a General and Administrative Expense budget, but she finds it a bit tricky to track her sales expenses, so she has no idea if her sales are profitable.
It's clear Jane needs a Sales Expense Budget
Her Johannesburg showroom rental is a sales expense. Telephone calls and her sales agent Angie's commission are also sales expenses because they're directly attributable to making the sale.
In a nutshell, Jane needs a Sales Expense budget. It'll let her know how many sales she needs to make to cover her fixed and variable sales expenses. The expenses are inevitable because she needs them to actually make the sales in the first place. So, if she doesn't understand what costs will escalate with increased sales, she'll lose control of her spending.
Don't lose control when it comes to your expenditure! Put a Sales Expense Budget
in place today.
Check out the Practical Accountancy Loose Leaf Service.
It will help you create your Sales Expense Budget in nine easy steps.