Sales forecasts are the first step in the budgeting process of a merchandising firm because:

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Sales forecasts are the starting point for budgeting in a merchandising firm because almost all activities of the company flow from estimated sales demand. Accurately forecasting sales allows the firm to plan its production, inventory levels, staffing needs, and other budgeted activities in the most effective and efficient manner. While revenue data may be easy to generate and sales personnel may have quick access to data, the main reason sales forecasts are the first step in the budgeting process is because they are crucial for all other aspects of the budget. Additionally, sales information may not always be precise in amount, and there is often some level of subjectivity involved in making sales forecasts.

Sales Forecasts Are the First Step in the Budgeting Process