Budgets

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Budget workshop at Kaospilot

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Budgets

  1. 1. / budgets Because a plan withoutnumbers is just a dream!
  2. 2. / programme – day1Introduction to budgetsEstablishing budgetBudgeting salesBudgeting costsThe operating budget
  3. 3. / programme – day 2SensitivityCash flowFinancingPresenting your budgetEXTRA– Phase by phase budgeting
  4. 4. / why budgets?Banks and investors will ask for themReality checkUnderstand how your business worksMeasurable goals
  5. 5. / but how is it possible to predict?
  6. 6. / how to think about budgetsARE NOT ARE (CAN BE) A prediction that Goal to strive for can only be wrong Creative limitations Assumptions to correct Simulations
  7. 7. / so what do wewant to know??
  8. 8. / we want to knowIs the product profitable?Can the business be profitable?What do we have to invest?What will be the return on our investment?When will we get our money back?How much cash do we need to keep itrunning?
  9. 9. / 4 budgets for startupsEstablishing budget—how big aninvestment will it take to get started?Operating budget (income statement) -how big a profit do I expect to earn andhow soon? - also includes the sales budgetCashflow budget—how much finance willit take to start up and get through the firstyears.Financing budget—where is the moneygoing to come from?
  10. 10. Establishing budgetHow big an investment will it take toget started?
  11. 11. COSTS Kr.Premises:Rent 18.000Deposit (3 months rent) 50.000Goodwill 50.000Decoration and renovation 0Shop interior and equipment:Pallet stacker 10.000Vareindkøb:Take over stock 50.000Purchase new goods 50.000Car:Downpayment, car 40.000Advisors:Advice from accountant, lawyer etc. 10.000Marketing:Marketing materials 5.000Total costs: 283.000
  12. 12. kr. Konceptudvikling Teknisk udvikling Proof of conceptWages 800.000 200.000 500.000Softwaredevelopment 3.000.000Videoproduction 200.000Other external salaries 50.000 100.000 120.000Premises and office 70.000Travel and transport 40.000 60.000 80.000Marketing and sales 500.000Total costs 960.0000 3.360.000 1.400.000
  13. 13. / operating budgetHow big a profit do I expect to earnand how soon? - also includes thesales budget
  14. 14. Turnover 1.200.000Goods sold -360.000Staff -143.000Premises -215.500Sales costs -35.500Administration costs -34.300Operating costs, total -788.300Earnings before depeciation 411.700Depreciation -100.000Earnings before interest 311.700Interests -35.000Net profit 276.700
  15. 15. For tiden 1 /9 2010 til 12 mdr. i31 /8 2011 Sept. Okt. Nov. Dec. Jan. Febr. Marts April Maj Juni Juli Aug. altVaresalg 250.000 250.000 300.000 400.000 200.000 250.000 250.000 350.000 250.000 250.000 150.000 200.000 3.100.000Vareforbrug 185.000 185.000 240.000 300.000 160.000 185.000 185.000 250.000 185.000 185.000 115.000 160.000 2.335.000Dækningsbidrag (DB): 65.000 65.000 60.000 100.000 40.000 65.000 65.000 100.000 65.000 65.000 35.000 40.000 765.000Faste omkostningerLøn 0 0 0 0 0 0 0 0 0 0 0 0 0Lokaleomkostninger 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 216.000Drift af bil 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 24.000Administrationsomkostninger 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 60.000Markedsføring/annoncer/reklame 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 12.000Uforudsete omkostninger 5% affaste omkostninger 1.300 1.300 1.300 1.300 1.300 1.300 1.300 1.300 1.300 1.300 1.300 1.300 15.600Fasteomkostninger i alt: 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 327.600Resultat før renter ogafskrivninger 37.700 37.700 32.700 72.700 12.700 37.700 37.700 72.700 37.700 37.700 7.700 12.700 437.400Renter 0 0 0 0 0 0 0 0 0 0 0 0 0Afskrivning, driftsmidler 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 12.000Faste omkostninger - renterog afskriv. i alt: 28.300 28.300 28.300 28.300 28.300 28.300 28.300 28.300 28.300 28.300 28.300 28.300 339.600Nettooverskud 36.700 36.700 31.700 71.700 11.700 36.700 36.700 71.700 36.700 36.700 6.700 11.700 425.400
  16. 16. / cashflow budgetCashflow budget—how muchfinance will it take to start up andget through the first years.
  17. 17. aug-10 sep-10 okt-10 nov-10 dec-10 jan-11 feb-11 maCash primo 175.000 -436.820 -403.890 -283.440 -177.534 -397.226 -81.056 -289Earnings before depreciation -98.870 -15.220 -4.600 152.306 -27.442 -101.130 230.847 461Debtors – changes -231.500 -116.500 105.000 -270.000 110.000 445.000 -1.090.000 -2.430Creditors – changes -620.000 153.200 20.050 223.600 -396.850 121.900 661.850 1.096Stock - changes 263.550 11.450 0 0 94.600 -94.600 0VAT - changes 75.000 0 0 0 0 0 0Operations liquidity -611.820 32.930 120.450 105.906 -219.692 371.170 -197.303 -871Fixed assets -55.000 -11.000 -35Fixed assets liquidity 0 0 0 0 0 -55.000 -11.000 -35LoanAdded capital, total 0 0 0 0 0 0 0Liquidity +/- -611.820 32.930 120.450 105.906 -219.692 316.170 -208.303 -906Cash ultimo -436.820 -403.890 -283.440 -177.534 -397.226 -81.056 -289.359 -1.195
  18. 18. / financing budgetFinancing budget—where is themoney going to come from?
  19. 19. Capital need I altHuslejedepositum 45.000Lokaleindretning 175.000Maskiner og driftsmidler 150.000Inventar 50.000Varelager 25.000Dankort og kasseapparat 25.000Driftskapital 85.000 555.000Kapitalbehov 555.000FinansieringsforslagSælgerkredit moms 30.000Leverandørkredit 25.000Driftskredit 500.000 555.000Finansieringskapital i alt 555.000
  20. 20. / exerciseEstablishing budget and project plan
  21. 21. Phase Phase 1 Phase 2 Phase 3 Phase 4 Phase 5DescriptionMilestonesDurationActivitiesResourcesPartnersNeed forfunding
  22. 22. / exercise:Sales/profit goals
  23. 23. / estimate your sales five methodsButtom up – What is out capacity – if we arerealistic?Top down – How big is the market and which sharecan we get?Brick by brick (another buttom up method)–products, markets, days, months, hours, events,customers etc.Quick and dirty - Estimate roughly and think backGeneral standards – What is typical for similarbusinesses?
  24. 24. / average revenueIndustry Avg. Avg. Revenue Avg. Revenue pr. revenue 1-3 years in Revenue pr. employee— with 1-4 business employee top employees performersCandy stores $68,666 $92,191 $37,707 $51,030Bars and $100,029 $176,409 $30,979 $38,305nightclubsIT Consulting $166,187 $486,545 $151,152 $186,156 From Entrepreneur.com
  25. 25. / gearwheels of your budget Identify the drivers that make your engine run
  26. 26. / example: Selling your hoursPrice pr. hourInvoiced hours pr. weekYour monthly sales:– Price x Hours pr. week x 4
  27. 27. Sales funnel– Mailings pr. week– Calls pr. week + Call again + Call later– Visits pr. week– New customers pr. week (orders)Web sales– Visits pr. day/week– Conversion rate
  28. 28. Decision process – time from contactto orderOrder size – average or categorizedOrder frequencySeasonsTime to recruit and train newemployees
  29. 29. / your sales formulaPrice pr. hourMax. invoiced hours pr. weekNew custmers pr. week/monthReordersAverage order pr. customerSeason
  30. 30. / exercise:Define your gearwheels
  31. 31. / operating budget (income statement)Sale / Turnover- Variable costs / used goods= Gross profit- Fixed costs- Depreciation- InterestsNet profit
  32. 32. / example: operating budgetNote 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
  33. 33. / sales budget 2009 2010 2011Net turnoverProduct A 3.460 5.260 7.960Product B 3.290 4.700 4.700 6.750 9.960 12.660
  34. 34. / estimating your costs 3 methodsThe hard way – estimate andcalculate 1 by 1.The direct hands on way – speakto experts – fx entrepreneurs or accountants.Rough estimates – based onstatistical data.
  35. 35. / assumptions about costsPrice pr. m2 Marketing planManhours Depreciation ratesSalary Interest ratesOther costs of staff Etc.Travel activity
  36. 36. / average profitabilityIndustry Gross profit Net profit Return on equity invest.Hotels 76,7 6,9 7,3Restaurants 62,7 3,6 24,4Retail, clothing 44,3 8,3 28,9Retail, food 37,3 3,1 18,6Cardealers 16,3 2,5 18,9Petrol stations 13 0,9 19,6
  37. 37. / necessary turnoverInformation you need to calculate necessaryturnover: 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 ratio ( Contribution margin * 100 / Turnover)
  38. 38. / contribution marginSales price of product/service- Direct (variable) costs of products/service= Contribution margin
  39. 39. Necessary Turnover =(All fixed costs + Necessary Profit)* 100 / Contribution Margin %
  40. 40. / exercise1. 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 +/-
  41. 41. / sensivitivty
  42. 42. RESULTAT 1 RESULTAT 2 RESULTAT 3Omsætning 950.000 1.200.000 1.550.000Vareforbrug -285.000 -360.000 -465.000Personaleudgifter -107.250 -143.000 -264.550Lokaleomkostninger -195.500 -215.500 -242.000Salgsomkostninger -29.000 -35.500 -43.000Administrationsomkostninger -32.750 -34.300 -36.350Driftsomkostninger i alt -649.500 -788.300 -1.050.900Resultat før afskrivninger 300.500 411.700 499.100Afskrivninger -95.000 -100.000 -105.000Resultat før finansiering 205.500 311.700 394.100Renteudgifter -35.000 -35.000 -35.000Renteindtægter 0 0 0Finansiering i alt -35.000 -35.000 -35.000Resultat 170.500 276.700 359.100
  43. 43. / cashflowCASH IS KING
  44. 44. / cashflow budgetYour cashflow cycleTax and VATCashflow budget
  45. 45. / your cashflow cycle Source: Venture Intelligence
  46. 46. / tax and VATVAT quarterly or semianuallyTax monthly (10 rates pr. year)Final tax statement 1st of July
  47. 47. / cash flow budgetCash – start of month+ Incoming payments- outgoing payments= Cash – end of month…sounds simple, doesn’t it
  48. 48. Marts April maj Juni Juli AugustLikvider midler primo 0 -340 -280 -300 -226 -60Salg af ydelser 0 400 400 400 375 75Indbetalinger i alt: 0 400 400 400 375 75UdbetalingerKreditor incl moms 0 0 0 0 0 0Moms at betale 0 0 80 0 0 235Faste omkostninger, incl.moms 0 0 0 0 0 0Fragforbrug, inkl. leasing 188 188 188 174 115 168Kapacitetsomkostninger 153 153 153 153 94 153Udbetalinger i alt 340 340 420 326 209 555ÆndringLikvider i bank/giro 0 0 0 0 0 0Disponibel kassekredit 0 0 0 0 0 0Minus likvide midler primo 0 -340 -280 -300 -226 -60Kassekredit ultimo -340 -280 -300 -226 -60 -540
  49. 49. / 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
  50. 50. / …but remember…delayed payments will catch upwith you in the end, so you’d betterget some incoming cashflow fast.

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