Finance for Sales Managers: Budgeting, Performance, Bonuses and Ethics

This report provides a comprehensive overview of key financial concepts relevant to sales managers. It begins with the calculation of gross profit margin and net profit ratio, differentiating between margin and markup. The report then delves into budgeting, covering different methods, information needs, consultation and negotiation approaches, framework development, and contingency planning. It further examines budget monitoring and control, including identifying and addressing variances, and providing performance information. Finally, the report explores bonus systems, evaluating their need, choosing options, and setting bonus structures, along with a discussion on monitoring the sales budget to identify unethical practices and potential fraud. The report provides a detailed analysis of finance related topics for sales managers.

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FINANCE FOR SALES MANAGERS

Contents
Introduction......................................................................................................................................2
1.1 Calculate gross profit margin.....................................................................................................2
1.2 Calculate net profit ratio............................................................................................................2
1.3 Explain the difference between margin and markup and when each of these are used in
practice.............................................................................................................................................3
1.4 Calculate return on capital employed........................................................................................3
2.1 Identify different methods used for setting budgets..................................................................4
2.2 Explain how to establish information needs and identify information sources for setting a
sales budget......................................................................................................................................4
2.3 Describe the different approaches to effective consultation and negotiation when setting a
sales budget......................................................................................................................................4
2.4 Explain how to develop budget frameworks.............................................................................5
2.5 Explain how to set a contingency plan for variances to a budget..............................................5
3.1 Explain how to use the budget to monitor and control performance against budget parameters
.........................................................................................................................................................6
3.2 Explain how to identify the causes of variances between budget and actual expenditure........6
3.3 Explain how to implement the actions needed to deal with the causes of variances between
budget and actual expenditure.........................................................................................................6
3.4 Explain how to provide information on performance against the sales budget to others in the
organisation......................................................................................................................................7
3.5 Explain how to monitor the sales budget to identify unethical practice or potential fraud.......7
4.1 Explain how to evaluate the need for a bonus system...............................................................7
4.2 Explain how to choose bonus options for sales team members.................................................8
4.3 Explain methods of setting bonuses..........................................................................................8

Introduction
Finance is the measurement and adjustment of managing the overall monetary activities
sustained through pertaining accounting preferences by a company. It can be stated that financial
activities are highly important for the organization so as to measure proper accounting
transaction offered by both the sales team and also the production team of an organization. Here
several assessment and evaluation regarding the finance for sale steam has been encapsulated.
1.1 Calculate gross profit margin
Gross profit margin has been considered as the revenue generated from capitalizing cost required
for sales from the total sales achieved by the company. The gross profit margin has been
calculated as the formula:
[(Sales –Cost of Sales) / Sales] * 100
Be the Sales of a company be 50000 GBP
Cost of Sales = 20000 GBP
Therefore Gross Profit = (50000 – 20000) GBP = 30000 GBP
Gross Profit Margin = (Gross Profit / Sales) * 100 = (30000 / 50000) * 100 = 60%
1.2 Calculate net profit ratio
After calculating the gross profit from the estimated cost of sales and total sales made by the
company, total expense borne by the organization due to operations are deducted from the total
gross profit achieved by the firm in that respective period. All the variable cost and the fixed cost
apportioned within the firm are deducted and thus the calculation of the net profit has been
sustained. The formula is:
Net Profit = [Sales Revenue - All costs (direct + indirect)]
Be the Sales of a company be 50000 GBP
Gross profit = 30000 GBP

Cost of expenses = 25000 GBP
Net Profit Margin = [(Gross Profit–Cost of expenses) / Sales] * 100
= [(30000 - 25000) / 50000]* 100 = 10%
1.3 Explain the difference between margin and markup and when each of these are used in
practice
Margin is tem which can be deemed as the indication of profitability pertained through margin
profitability attained by a firm. While, mark up has been referred as the retailing concept where
cost plus pricing techniques has been established in a convenient way after enabling price after
the total sales made by the firm.
Margin percentage = 100% * Net Profit/ Sale Price
If a product has been sold for £24 which has attributed a cost to a retailer £20:
Margin percentage = (24-20)/28 * 100% = 14.28%
Mark up is considered as per the decision taken by the higher official of a firm. If the cost be 20
GBP of a product, then it can be sold at different percentage as marked up price. If it is sold at
20% mark up price, then the selling price will be 20 GBP + 20*20/100 = 24 GBP.
1.4 Calculate return on capital employed
Return on capital employed or ROCE helps to measure the return achieved by a firm after
allocating its resources that are available for generating the return. The ratio between the
operating profit to the capital employed within the firm has been regarded as the return as
percentage.
ROCE % = 100% * (operating profit/capital employed)

Capital employed is considered as the result of subtraction between total assets and current
liability of a firm.
2.1 Identify different methods used for setting budgets
Budget can be easily settled for an organization after determining the sales revenue of the firm. It
can be demonstrated that organizations. Sales forecasting and its methods have been judged as
per the actual values that has to be set lower according to the forecasting abilities pertained by
sales. Pertaining the method it has been judged about the affordability, judgement, percentage
regarding the sales, and also competitive parity with proper objective and tasks. Therefore
determining the sales and their objectives are highly required for the firm in determining the
estimation of the cost required by the firm.
2.2 Explain how to establish information needs and identify information sources for setting
a sales budget
Proper information in order to set budgets is needed by the organizations. Therefore, it is
important to achieve sales revenues and unit sales in order to forecast each products as well as
services that are included within the budget. Proper determination of sales and their expenses are
needed to be included as per the inculcation achieved in the respective lines of budget. For the
respective time period, it has been observed that the breaking the sales and expenditure per
month have to be emphasized so as to manage the capital intensive perception effectively within
the firm. Sourcing information from different parts can also be judged in order to validate the
revenue and also the target of sales and expenditure costs attained by the firm. Checking the
products effectively from all the operational departments are important enough to meet the
schedules generated.
2.3 Describe the different approaches to effective consultation and negotiation when setting
a sales budget
Setting the sales budget of the company are always important in involving following interactions
that are described underneath on behalf of every organization:

Gathering proper information in order to formulate the sales budget is required. Moreover,
making proper and efficient decision to control the aspects of sales budget is necessary. Proper
management approvals are important for the budget. Communication to align the budget as
power the planning perspectives are also important. Thus the sales budget has been regarded as
the key and vital planning documents through which higher influence on different in gathering
the communication information. There are different number of communications and mechanism
that are required to disposal that are needed to be chosen through the proclaimed tasks that can
be deemed through email. The usage varieties have been kept with proper information that help
in resolving the issues. Difference in opinion or respective conflict regarding the agenda has to
be reconciled.
2.4 Explain how to develop budget frameworks
Budget framework has been maintained through a proper structural development in order to
organize the budget information. It has identified the categories of the revenues along with the
expenditure that has organizes the logical to make a quantitative analysis that are easy. The
convenient perspectives regarding the way of developing the budget framework to utilize with a
spreadsheet that are as follows:
Proper automation systems are necessary with different mathematical functions for using the
considerations are entailed. It can be updated with the estimation of the changes that are
revealed. It is useful for a tool to communicate after the budget has been needed. Proper
organizing the data with hierarchical order are necessary.
2.5 Explain how to set a contingency plan for variances to a budget
Variances are considered as the difference in between the intended levels that are forecasted and
actual balance achieved after inducing the sales revenues and expenditure. Positive budgetary
balance will be achieved when the balance of sales revenues exceed actually upon the total
budgeted values. Therefore, it is highly important to maintain correct forecast for the firm.
Negative budget has assumed the aspects of sales revenue shortfall in actual balance than the
total budgeted figure estimated. In order to maintain an effective contingency plan, a definite
budget variance frame work has been administered successfully that have been portrayed below:

It is highly needed to identify the most likely events that will influence the overall budget. The
organization has enabled little control regarding the events that are developing the external
environment of the business. Planning appropriate responses regarding the variance within an
organization to control and spend about the deployment regarding the workforce.
3.1 Explain how to use the budget to monitor and control performance against budget
parameters
Sales budget has been considered as much more critical object in maintaining the planning
perspectives that are set out when the revenues are identified and needed to achieve the targeted
revenues successfully. It is highly important to maintain the sales budgets that are responsible for
coordination that enhances the operational activity and also investment delivery that are needed
to prepare the sales budget. Moreover, monitoring and controlling the performance against the
budget are always needed and regularly reviewed so as to ensure corrective actions that are
needed to be taken as a necessary perception to control the process. After the coordination
procedure has been achieved, different operational perspectives are directly affected by the sales
budget that has empowered the sales department to deploy the resources to close the sales. The
marketing department are required with specified needs that are effective enough to deliver the
activities of promotion on behalf of the firm.
3.2 Explain how to identify the causes of variances between budget and actual expenditure
As per the significance of business operation, it has been achieved that two important causes for
measuring variance in budget expenses are inaccurate methods of forecasting regarding the cost
are necessary. Changes within the respective level regarding the activity are required for closing
the sales excess that what have been budgeted. Important information are needed to be collect for
small irregular and fluctuations observed from the arousing effect of random events within the
business environment are ignored.
3.3 Explain how to implement the actions needed to deal with the causes of variances
between budget and actual expenditure.
The processes through which the expenses variances are outlined are as follows:

Proper identification to consider the extent and also nature regarding the variance are necessary.
Proper evaluation regarding the variance and warrants to maintain corrective actions will have to
be sustained. Apart from this, raising awareness and confirm the reason of variances are
required. Agreements for corrective actions are also needed by setting proper timescales for the
respective action that will take place. Reviewing the status for confirming the respective
variances that are fixed are highly required.
3.4 Explain how to provide information on performance against the sales budget to others
in the organisation
The factors that are considered are as follows:
 Information for budget using current information
 Appropriate measurement for targeting the audience
 Information scope
 Format of communication are needed
 Clarity regarding communication are needed
 Key communications are highly needed
3.5 Explain how to monitor the sales budget to identify unethical practice or potential
fraud
Unethical practices will generate some interventions that are:
Misuse regarding the funds such like the aspects of fiddling expense and their respective claims
Falsely reporting towards the amount of sales to secure overall performances that are related to
pay
Thus monitoring the budget will reveal certain circumstances that are:
Significant variances with no such satisfactory explanation
Anomalies with the comparison factors for different quantities are needed to claim the expenses.
4.1 Explain how to evaluate the need for a bonus system
In considering the effective practice within the firm, it is important to provide bonus as
remuneration to employees. The system of bonus is generally considered as motivational factor
for the sales professionals in order to control the overall mechanism.

4.2 Explain how to choose bonus options for sales team members
It helps in improving the performance of the firm by pertaining motivation towards the sales
team.
It is used to focus upon the sales effort regarding much more profitable and strategic objectives.
It has assisted in retaining much more experienced managers for organizing and attracting newer
talent for the organization.
4.3 Explain methods of setting bonuses
There are numerous options that are available for implementing the system of bonus that are as
follows:
Utilizing single as well as multiple performance measurement
Measurement can be sales revenue or other key performance indicators.
Apart from this, the monetary rewards are considered to be important part of the sales bonus to
achieve the revenue and gross margin.