Budgeting – Terror or Triumph Part I

Budgeting Sales

It’s that most wonderful time of the year – time to plan! Are we approaching this with glee and enthusiasm, or are we feeling terror and planning a sabbatical instead? Perhaps the enthusiasm or terror is in direct proportion to the type of planning we’re doing. If your fiscal year is also your calendar year, and you’re looking at the sales budgeting process, it doesn’t have to strike fear in our hearts. There is a simple 5-Step process we can follow that will deliver impressive results every time.

To begin, let’s gather our historical data and get to work. If we’ve been vigilant in keeping up with recording sales history in our dashboards, this will be a piece of cake. If we haven’t, let’s vow to do this going forward so that we have the data we need at our fingertips.

Step 1 – Normalize our Sales History
The first step in planning our sales for next year is to NORMALIZE sales for this year. This means that we will project what our sales would have been without any of the unusual occurrences we saw this year. What happened that was out of the ordinary, and what revenue did it generate? What revenue did we miss? In August 2014, Napa experienced an earthquake measuring 6.1. This dramatically impacted sales for many wineries. In planning sales for August 2015, we needed to project what our sales would have been, had there not been an earthquake. Conversely, did a group of Texans visit your tasting room and buy a pallet of wine for corporate Christmas gifts? Unless we have information to the contrary, we will want to pull out that huge sale and plan the same month for next year with the assumption that this transaction will not happen again.

Step 2 – De-seasonalize our Sales History
Next, we want to de-seasonalize our sales and adjust them. This means looking at the shift in holiday dates and making the adjustments that the calendar dictates. Is Thanksgiving earlier or later this year than it was last year? Visitor traffic, and therefore sales, may shift between November and December. Be mindful of a shift in calendar dates for the holidays that create 3-day weekends, such as President’s Day. The timing of Easter can also cause a shift.

Step 3 – Adjust for Business Maturity
It’s tempting to envision a sales curve that keeps growing year after year. Unfortunately, that slope of sales increases will eventually taper off. If our new business has been increasing at a double-digit rate, we need to examine that growth rate and be realistic about what we can expect in future months. We may still be growing, just not at the same breakneck speed that a new business enjoys. Likewise, what is happening in our neighborhood? If there are new wineries in our area compared to last year, is this impact positive or negative for our business? Are the new wineries bringing us additional traffic or diluting our sales?

Step 4 – Adjust for Product & Pricing Changes
How has the composition of our portfolio changed? Have we increased prices? Have we added a new tier of wines that we didn’t have last year? What will be the effect of these new products and pricing on our sales?

Step 5 – Develop some Revenue Assumptions
This effort is greatly enhanced if we have done a SWOT analysis with our whole team, examining our Strengths, Weaknesses, Opportunities, and Threats, both internal and external. What do we vow to repeat, get rid of, or begin to do? How will our new initiatives impact our future sales performance?

We can then translate our beliefs about the future into numerical estimates for our sales budget. Consider changes with external sources – our customers, competitors, and location. Include the impact of internal changes – our organization, training, incentive compensation, promotions, and events.

When is the best time to plan for next year’s sales? We can make this budgeting process easy on ourselves by budgeting for next year every month. A WISE best practice is to plan each month for next year when that same month this year has ended. If we’ve been vigilant and disciplined in making our diary notes, creating our new sales budget will be a piece of cake.

Following this simple 5-Step process will make us feel triumphant and ready to take on the new year. Remember, if we fail to plan, we will plan to fail. Let’s prepare and plan for a successful year!

Next month – Budgeting Expenses

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