Budgets

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Startup budgets

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Budgets

  1. 1. / budgets Financial statements before start up
  2. 2. / budgets for startups Financial statements before you start up your own business: Sales prices and calculations —cost pricing or value pricing? Establishing budget—how big an investment will it take to get started? Operating budget (income statement) - how big a profit do I expect to earn and how soon? - also includes the sales budget Cashflow budget—how much finance will it take to start up and get through the first years. Financing budget—where is the money going to come from?
  3. 3. / why budgets? Except from answering the crucial questions above, the budgets have other purposes: Bankers and investors will need them to make decisions about financing. You will need them to check if the business is developing according to the plans. The process gives you a very concrete feeling of what your business is about. Only by making the budgets you find out how realistic your dreams are.
  4. 4. / assumptions Size, share and Employment growth of target segment Travel activity Sales prices Marketing plan Variations in demand Depreciation rates Cost prices, gross Interest rates margin and waste Terms of payment
  5. 5. / operating budget (income statement) Sale / Turnover - Variable costs / used goods = Gross profit - Fixed costs - Depreciation - Interests Net profit
  6. 6. / example: operating budget Note 2009 2010 2011 1 Turnover 6.750 9.960 12.660 2 Cost of sales -3.970 -5.830 -7.180 Gross profit / Contribution margin 2.780 4.130 5.480 3 Staff -1.743 -1.583 -2.245 4 Rent, electricity and heat -230 -243 -262 5 Marketing, sale and travel -456 -460 -470 6 Administration -359 -415 -475 9 Depreciation -245 -275 -275 Earnings before interest and tax -253 1.154 1.753 7 Interest on bank deposit 6 6 6 8 Interest on bank debt -141 -93 -32 Earnings before tax -388 1.067 1.727
  7. 7. / sales budget 2009 2010 2011 Net turnover Product A 3.460 5.260 7.960 Product B 3.290 4.700 4.700 6.750 9.960 12.660
  8. 8. / estimate your sales five methods Buttom up – What is out capacity – if we are realistic? Top down – How big is the market and which share can we get? Brick by brick (another buttom up method)– products, markets, days, months, hours, events, customers etc. Quick and dirty - Estimate roughly and think back General standards – What is typical for similar businesses?
  9. 9. / average revenue Industry Avg. Avg. Revenue Avg. Revenue pr. revenue 1-3 years in Revenue pr. employee— with 1-4 business employee top employees performers Candy stores $68,666 $92,191 $37,707 $51,030 Bars and $100,029 $176,409 $30,979 $38,305 nightclubs IT Consulting $166,187 $486,545 $151,152 $186,156 From Entrepreneur.com
  10. 10. / exercise: estimate your sales Make a rough estimate of your sales by using one of the methods mentioned. List your assumptions. Present your result to another group. The other group should try to test your assumptions by asking clarifying questions.
  11. 11. / estimating your costs 3 methods The hard way – estimate and calculate 1 by 1. The direct hands on way – speak to experts – fx entrepreneurs or accountants. Rough estimates – based on statistical data.
  12. 12. / average profitability Industry Gross profit Net profit Return on equity invest. Hotels 76,7 6,9 7,3 Restaurants 62,7 3,6 24,4 Retail, clothing 44,3 8,3 28,9 Retail, food 37,3 3,1 18,6 Cardealers 16,3 2,5 18,9 Petrol stations 13 0,9 19,6
  13. 13. / exercise: Make a list of the 10 most important costs in your business. Identify the three most important costs and discuss the level—cost pr. year. Discuss whether you could eliminate or reduce any of the top 10 costs.
  14. 14. / necessary turnover Information you need to calculate necessary turnover: Fixed costs ( Staff, administration, marketing, depreciation, interest and other fixed costs) Necessary profit (The yearly profit you need or want to run the business) Contribution margin % ( Contribution margin * 100 / Turnover)
  15. 15. / contribution margin Sales price of product/service - direct costs of products/service bought from supplier = Contribution margin
  16. 16. Necessary Turnover = (All fixed costs + Necessary Profit) * 100 / Contribution Margin %
  17. 17. / exercise 1. Decide what your necessary profit should be (covering your income). 2. Estimate your level of contribution margin. 3. Estimate your necessary turnover at different levels of fixed costs—based on an expected level +/-
  18. 18. / cashflow CASH IS KING
  19. 19. / cashflow budget Your cashflow cycle Tax and VAT Cashflow budget
  20. 20. / your cashflow cycle Source: Venture Intelligence
  21. 21. / tax and VAT VAT quarterly or semianually Tax monthly (10 rates pr. year) Final tax statement 1st of July
  22. 22. / cash flow budget Cash – start of month + Incoming payments - outgoing payments = Cash – end of month …sounds simple, doesn’t it
  23. 23. Marts April maj Juni Juli August Likvider midler primo 0 -340 -280 -300 -226 -60 Salg af ydelser 0 400 400 400 375 75 Indbetalinger i alt: 0 400 400 400 375 75 Udbetalinger Kreditor incl moms 0 0 0 0 0 0 Moms at betale 0 0 80 0 0 235 Faste omkostninger, incl. moms 0 0 0 0 0 0 Fragforbrug, inkl. leasing 188 188 188 174 115 168 Kapacitetsomkostninger 153 153 153 153 94 153 Udbetalinger i alt 340 340 420 326 209 555 Ændring Likvider i bank/giro 0 0 0 0 0 0 Disponibel kassekredit 0 0 0 0 0 0 Minus likvide midler primo 0 -340 -280 -300 -226 -60 Kassekredit ultimo -340 -280 -300 -226 -60 -540
  24. 24. / how to improve your cashflow a few ideas Don’t be optimistic to tax authorities Cash credit in stead of loan with immediate repayment Pay your suppliers later Make your customers pay earlier – fx through cash discount, subscription or deposit if possible Send reminders and follow up ASAP Lease in stead of buying Outsource operations that require investments
  25. 25. / …but remember …delayed payments will catch up with you in the end, so you’d better get some incoming cashflow fast.

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