The document outlines the significance of the selling and administrative budget in influencing net income for both product and service businesses. It highlights four key performance areas: managing for growth, managing and protecting assets, compliance with legal requirements, and selling and support services, with practical examples provided for budgeting and managing these aspects. It emphasizes the importance of structured strategies for financial and asset management to sustain business growth and compliance.

1. THE SELLING &
ADMINISTRATIVE
BUDGET

2. Selling and administrative
expenses can have a big impact
on net income

3. The selling and administrative
budget applies to both product
and service businesses

4. Budgeting for selling and
administrative expenses
When it comes to selling and administrative areas, there are 4 key
performance areas a business should be concerned about namely
Managing for
growth
Managing &
protecting assets
Legal
requirements/
compliance issues
Selling and
Support services

5. In my cake shop, to sell 1,000
cakes, I break my expense down
into these 4 areas
My Cake Shop Example

6. Managing for growth
Managing for growth
starts with the budget
To handle the increased
sales volume
anticipated from the
planning process
I also need a type of
customer relationship
management system.
Lastly, I need to hire a
part time employee to
make sales call and
send direct mail
Budget Telephone
Software Labor cost

7. Asset management includes the
proper management of your cash,
inventory, account receivables and
other physical assets
Managing & protecting assets

8. Cash management involves
Making sure
payments are made
and deposited
Recording the inflow
and outflow of cash
in the accounting
information system
Creating weekly cash
forecast to optimize
the smooth running
of the business
Investing excess cash
to increase returns

9. Accounts receivable
management involves
These are written
processes accessible by
all staff. These policies
should be consulted
before extending credit
Your regular accounting
system will most likely
be able to effectively
handle this
Depending on the size
of your accounts
receivable you may
need to hire a staff just
to manage receivables
A policy and
procedure system
An accounting
information system
A/R staff

10. Inventory management
My Cake Shop will be purchasing software to
manage assets. The business is still small enough
where a couple of hours, software and occasional
consulting with an accountant will do
A direct material budget/
previously discussed
An accounting information
system: Your regular
accounting system will
most likely be able to
effectively handle this

11. Other assets
As we have moved from an industrialization age to knowledge age,
financial reporting has to evolve to reflect it
The extent to which
physical assets have to
be managed will
depend on the type of
business
Physical assets
Cost associated with managing assets include
Repairs and maintenance cost: the routine repairs
needed and following the maintenance schedule.
Physical assets that follow a maintenance schedule
last longer and are more reliable

12. Intangible assets
These are intangibles that
can protected by the law. A
business owner will need
legal consultation to
effectively file for these
intangibles
Content developed creates
additional value for the
business owner
Include those activities used
to increase the retention of
your staff. High turnover is
very costly to a business. And
intangibles could be a great
way to bridge that gap
knowledge management
starts with the acquisition of
knowledge, then using the
knowledge to create assets,
refinement of knowledge,
storage and transfer
This is investment in physical
assets to make the life of
employees more comfortable
Trademarks,
copyrights, patents
Content
management
Human resource intangibles Knowledge management
Employee Comforts

13. As an entrepreneur, it is your
responsibility to find out your legal
requirements
Legal requirements/ compliance issues

14. You must develop systems to comply with this law or
your business could be shut down. Most common
laws business owners need to comply with are
Tax laws
Human resource
laws
Business entity
laws
It is advisable to
solicit the help
of an attorney
Since My Cake Shop, is still very small, legal
requirements and compliance obligations will be
outsourced to an accounting and law firm

15. It is not enough to make your products, you need customers
to sell your products to. This could mean hiring a customer
service rep, having a place to conduct your business (rent,
utilities, insurance), hiring a sales force. Advertising in print
and on social media, packaging the product for shipping
Selling and Support services

16. My Cake Shop selling and
support activities are as follows
Attend workshops on
customer service and
how to influence others.
This includes travel and
meals
Central hub for
employees to sync
processes. Get
economically space
Space to communicate
with customers
Shipping expense
Attend conferences on
leadership and growth

17. When budgeting for selling and administrative
expenses, it is important to budget for the
labor cost separately. This will enable you to
effectively access your labor needs
Steps to budgeting for selling and
administrative expenses

18. Break your business
activities into the 4 key
performance area
List the activities needed
for each key
performance area based
on what it will take to
meet your sales figure
List the vendors that
provide services for
each activity
Rank them in relevance
To budget for non-labor selling
and administrative expenses,
follow these steps

20. Estimate how much
it will cost to
execute the activity
Separate the fixed cost from
variable cost
For fixed cost
For variable cost
Figure out the
cost of one unit
of the activity
Determine a
buffer
Predict total
cost based on
activity level

21. Eliminate Non Relevant Vendors
Any vendor in your current
system who did not make it
to the list is not relevant to
your future success. If you
have a subscription with this
vendor, be sure to cancel it

22. An Example

24. Creating the budget for selling and
administrative labor
Next, budget selling and administrative expenses
based on your sales forecast. In other words, how
much would you need to bring the sales forecast to
reality? Do you plan to hire sales people? Remember
the formula to determine labor cost

25. Direct Labor = Number of hours needed * Price per hour
Number of hours needed = Number of hours needed to bring
sales forecast to reality * percentage discount for skilled labor
set
Price per hour = Average market price * premium for skill sets
with limited supply
This formula holds true when specialized skills are needed. Most administrative
jobs are easy enough that specialized skills are not needed. So the formula for
administrative labor can be broken down to
Direct Labor = Number of hours needed * Price per hour

26. Break your business activities into
the 4 key performance area
List the activities needed for each
key performance area based on
what it will take to meet your
sales figure
List the employees that provide
services for each activity
(contractors and vendors are part
of your other overhead. Only
services you perform in-house
either by you or employee are
listed here
Rank them in relevance – on a
scale of 1-10, how important are
they in performing each
designated activity. For each
activity consider
Steps to creating the selling &
administrative labor budget

27. Examine workload and
relevance of job
Can an employee be
shifted into a new area
more relevant to the
business growth
Are employees
stretched
Is there any training you
can provide to help
employees become
more efficient with the
job
Can you consolidate job
functions so as to
improve relationships
with customers
Can you outsource part
of their job function and
divert the employee to
more productive tasks

28. Separate the fixed salaries from
variable salaries
Write salary by
employee
(including any
proposed raise)
For variable cost
Figure out the pay per
hour
Multiply this by the
total estimated hours
needed
If sales commission is
part of sales structure,
multiple commission
rate by estimated sales

29. Notes for employees
If an employee performs a job function poorly, you might
consider additional training, outsourcing or shifting the
responsibility to another employee who performs it well.
I believe in retaining hard working employees
Do not be too quick to let
hardworking employees go
because they perform an
aspect of their job poorly
However If an employee
scores below average on all
functions, and you have
tried training, you might
want to consider letting
them go

30. Excel Worksheet Summary

35. Get the worksheet here

36. A budget helps you sort out the must haves,
from the nice to have. With a budget you can
evaluate the impact of an expense before you
ever spend a dollar
Summary

37. MORE
INFORMATION
www.mybusinesskpi.com/SellingAd
ministrativeBudget.html
www.mybusinesskpi.com
Email: evelyn@mybusinessskpicoach.com
Phone: (417) 812-5945