let's say you're throwing a party and you're going shopping for some supplies you might be tempted to go all out I'm talking bouquets of fresh roses the most lavish catering caviar flavored Pringles and you know what if we're talking about a dream party I want a giraffe cause why not unfortunately you've only got like 45 bucks to spend so you have to limit yourself to the few things you need businesses do the same thing and make a plan for their money called a budget which is what we're talking about today this is the only video in unit 11 financial analysis take a look at this breakdown which shows you how often this unit comes up on District State and international exams for each of the different clusters hello and welcome this is lesson 11.1 marketing finances now let's get to work team in this video we will be covering three topics financial planning budgeting and financial reports financial planning is a process of setting financial goals and developing processes to reach those goals one of the most important goals that a business can set is goal for Revenue if you don't already know revenue or sales is the amount of money a business makes from selling products or services and setting a revenue goal starts with creating a sales forecast now we briefly touched on sales forecasting in lesson 10.2 but today we're going to go into greater depth sales forecasts predict future sales based on past sales and market analysis specifically businesses will evaluate sales figures the successes and failures of their marketing plans and other internal and external factors internal factors are events within the company like changing a vendor while external factors are beyond the company's control such as the economy or political events now sales forecasts can be quantitative or qualitative quantitative forecasts are based on facts and figures like past sales and market share they might be as simple as taking the dollar amount of sales from the last quarter and multiplying it by the percentage you expect it to increase What's called the sales increase Factor here is the formula for forecasted sales increase for example say a company has a sales goal of a 20 increase in sales from year one to year two if sales in year one were eighty thousand dollars you multiplied that by twenty percent and get sixteen thousand dollars as your projected sales increase then if you want to calculate your sales forecast you just add your previous year sales to your sales increase to get your sales for year two in this case it would be eighty thousand dollars plus sixteen thousand dollars which equals ninety six thousand dollars qualitative sales forecasts are based on judgment rather than facts and figures and are mostly used when a business or product is new because there's no past sales record to base your forecast on you need to just use your judgment now that we have covered sales forecasting let's take a look at how a business actually uses it businesses create budgets which use an estimated Revenue to plan how much money will be spent typically each department in a business has its own budget and the company has an overall budget these budgets can be made for time periods of one month one quarter six months or a year when creating a budget managers have to find out which costs are necessary to keep the business running and which ones are not this is called cost control and it allows companies to make sure they are staying within their budget at the end of the year managers compare their actual revenue and expenses with the budgeted ones and use that information for future budget plans now something you might not know is that public companies make their finances known through financial reports these include balance sheets and income statements if those sound familiar it's because we mentioned them in our video about applying for a loan obviously check it out up here these kinds of financial reports are based on what actually happened in the reporting period they look back in time the financial reports for loans are pro forma which means their predictions now that we've gone over all the content it's time to test for knowledge with a real Deca question pause the video and try to answer the answer is a financial control tool as I mentioned the budget is important for cost control which refers to monitoring costs and ensuring you actually stay within your planned budget and here are the sources we use for this video feel free to check them out if you still have any questions all right that pretty much sums up lesson 11.1 marketing finances great work team and we'll see you in the next video