Managing Cash Flow

100 Analyzing the Sales Function
As planning needs were defined, it became apparent that all functions had
to work together, including the sales function. To develop an effective organizational
plan, various factors must be considered, such as:
• The organizational business plan and related budget, the starting point for
organizational planning
• The nature of the business, type of manufacturing/service provided, relations
with vendors and customers, operating processes, products or services
to be produced, and so on
• What businesses the company should be in, what products or services it
should be selling, to whom, and to what extent
• What businesses the company should not be in and a full understanding
of why these businesses should be avoided
• The control and feedback features required to manage and control operations
(including sales) so as to meet commitments
• Reporting requirements that enable the organization to operate in the
most economical, efficient, and effective manner
Planning and Budget System
The master planning and budget steps for an organization are shown in Exhibit 4.2.
As can be seen, the starting point in the process is the sales and market forecast
(both short-term and long-term forecasts). This is the definition of what goods
and services the company expects to sell and to whom. However, because the
effectiveness of the organizational plan is dependent on the accuracy of such a
market or sales forecast, many companies experience planning problems before
going any further, a result of their having sales forecasts that are more fiction than
reality. So for most companies the first step in effective planning is to work toward
more accurate sales forecasts on which to base their plans. A good rule of thumb
is that an effective sales forecast should consist of at least 80 percent real customer
orders. This means that the sales function may have to do what they may not have
done in years—communicate with and service the customer.
THE SALES FORECAST DRIVES
THE PROFIT AND CASH BUDGETS.
The organization, together with the sales function, must determine what
products or services (or product lines) it wishes to sell in the coming period. This
decision is made by analyzing past sales, customer (and noncustomer) needs and
desires, inventory levels, production/service delivery capabilities, futuristic considerations,
competitive factors, and so on.