When Oscar explains to Michael about the budget surplus using a lemonade stand analogy, he talks about the budget as a resource “available for spending”. I always looked at budget as being a target for your sales and contribution margin, which I understand are far more important… How real is it on an accounting basis?
For those who do not know which skit I’m talking about, https://youtu.be/dWfrMMNeK2k
Edit: The Office’s.
In: 2
In general a sales budget is called a “forecast” and not a budget. There’s no reason you can’t call it a budget, and I’m sure some organizations do but in general a guess at future sales is called a sales forecast.
In general in business you always have the problem of needing to know the future in order to make decisions for today.
So the sales department might set a forecast at X and treat it like a sales target. But that’s mostly because other parts of the company can do their jobs better if they have some idea of what is going to sell before you actually sell it.
How many delivery drivers you need to hire is entirely dependent on how much stuff you are going to sell. But buying a trick and training a driver takes time, so you need to hire and train them before you do the actual selling of the stuff. So being able to predict the future becomes very important.
Budgeting and forecasting is all about predicting the future so that you can make decisions in the present.
The other thing to keep in mind, often with a large “top down” organization like Dunder Mifflin is portrayed as. The corporate overloads would tell a manager how much money he can spend in a given year, and also tell him how much he should be selling in that year. These spending and revenue targets are set where they are to allow the company to be profitable while still maintaining service levels.
To ask you a question, what good is a sales target if the purchasing department didn’t actually buy enough inventory to satisfy that sales target?
Spending is kind of the same way, you often need to know how much money you have available to spend, before you actually commit to spending the money. So a spending budget is created.
So the purchasing department would base their inventory purchases on the Sale’s department’s sales forecast. If the sales department turns out to be wrong, the purchasing department will have order (or under) ordered and it’s going to be an issue.
But every single element of business spending is basically the same. You need to have enough employees to meet your demand for employees, but not to many because they you will have over paid. You need enough computers for the number of employees you have, not not to many. And on and on and on.
Much of the practice of “business” is all about budgeting, forecasting and record keeping. Often you have to make decisions about how much of something you need before you actually need the thing, and can’t change in mid stream.
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