2.2

• Sales forecasting


  An important task which directly affects its efficiency and success
• Forecasting 


  Is a business process which assess the probable outcome musing assumptions about the future.
• Why might a business like to predict with accuracy

  EG:

  Future sales of products

  the effect of promotions on sales
• Time series analysis

  Involves predicting future levels from past data
• Time series data


  A set of figures arranged in order, based on times they I’m occurred
• 4 components a Business wants when they want to identify in time series data

  The trend

  Seasonal fluctuations

  cyclical fluctuations

  Random fluctuations
• Benefits of sales forecasting

  Clear idea of cash inflows will be

  Allow business to plan when to order supplies

  Ensure the business has the correct Staffing levels

  Ensure that the business is able to meet the projected orders with the capacity it has
• Factors affecting sales forecasting

  Consumer trends

  Seasonal variations

  Fashion

  Long term trends

  Economic growth

  Interest rates

  inflation

  Unemployment

  Exchange rates
• Difficulties of sales forecasting

  Volatile consumer taste and prefrences

  range of data

  subjective expert opinions
• Sales volumes

  The output produced by a business is eventually sold
• Sales revenue


  Is the value of output sold by a business
• Business costs

  Short term - This is where at least one factor of production is fixed ( Stays the same)

  Long term - Where all the factors can vary. The maximum amount which can be produced and begin another short term period
• Fixed costs

  Costs which stay the same at all levels in the business. Costs remain the same if the business is working or if its not working such as rent, electricity. can increase due to inflation
• Variable costs

  Costs of production which increase directly as output rises.
• Total costs

  When the fixed and variable costs are added together to make the total costs
• Contribution

  The amount of money left over after a variable costs have been subtracted from revenue. Money goes towards fixed costs and profits
• Break even point


  Business would like to know how much they would need to sell to reach the break even point.

  If they have the fixed and variable costs, they can then calculate how much they need. For some business its a performance milestone
• Break even chart

  
• Margin of safety


  How much sales could fall before a loss is made. Refers to the rangeof output over which a profit can be made
• Margin of safety


  How much sales could fall before a loss is made. Refers to the range of output over which a profit can be made

  
• Using break even analysis


  Used to male decisions for the future. Also used to make business plans
• Limitations of break even analysis

  Output and stock - If output is sold out then no stock is held, business cant cope with changes in demand

  Unchanging condition - Cannot cope with a sudden increase in wages, prices or new technology

  Accuracy of data - If data is poor and inaccurate that means the data is flawed.

  Non linear relationship
• Budgets

  Is a financial plan which is agreed in advance. Must be a plan NOT a forecast. Its where it is a planned outcome which the firms hope to achieve
• Forecasts


  A prediction where of what might happen in the future
• Purposes of a budget

  Control and monitor - allows management to control the business. Sets objectives and targets

  Planning - Forces management to think ahead

  Co-ordination - Are often complex organisations which have to many departments and allows co ordinations and control throughout the business

  Communication - Shows priorities which of the business and highlights costs that need to be kept under control

  Efficiency - Important for management to empower staff to delegate decision making. Gives financial control
• Historical figures


  Data which is used to prepare the budget based on the data that the business has gathered. Past data.
• Zero based budget


  Where costs can not be justified then no money is allocated in the budget for those costs.
• Zero based budgets advantage


  Allocation for resource improved

  Encourages managers to find an alternative
• Zero based budget disadvantage


  Time consuming as it requires data analysis

  Skilful decision making is required

  Could affect motivation
• Budgetary control


  Involves using budgets to look into the future, stating what it wants to happen and the deciding how to achieve these aims
• Control process of budgetary control

  Preparation of plans - Targets are set

  Comparison of plans with the actual control

  Analysis of variances - Finding the reasons with the acyual and expected financial outcomes
• Variances

  Budgeting the difference between the figure that the business has budgeted and the actual figure. Can be favourable or adverse
• Variance for decision making


  Important to identify the reason which variances have occurred. When making decisions on why the business should be run, information on variances can be very helpful.
• Difficulties of budgeting


  Setting budgets - Budgets are not actual figures

  -If sales data is inaccurate, many firms budget is inaccurate

  -Budgets can lead to conflict between staff

  -Time spent on budgets can be spent on something else

  Motivation

  Manipulation

  Rigidity - Constrain business activities

  Short termism - Focused on the current budget, might undermine future performance on the business to meet current budget targets