/ 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?
/ 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?
Establishing budgetHow big an investment will it take toget started?
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
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
/ operating budgetHow big a profit do I expect to earnand how soon? - also includes thesales budget
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
/ financing budgetFinancing budget—where is themoney going to come from?
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
/ exerciseEstablishing budget and project plan
/ 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?
/ 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
/ gearwheels of your budget Identify the drivers that make your engine run
/ example: Selling your hoursPrice pr. hourInvoiced hours pr. weekYour monthly sales:– Price x Hours pr. week x 4
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
Decision process – time from contactto orderOrder size – average or categorizedOrder frequencySeasonsTime to recruit and train newemployees
/ your sales formulaPrice pr. hourMax. invoiced hours pr. weekNew custmers pr. week/monthReordersAverage order pr. customerSeason
/ 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)
/ contribution marginSales price of product/service- Direct (variable) costs of products/service= Contribution margin
/ 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 +/-
/ cashflow budgetYour cashflow cycleTax and VATCashflow budget
/ your cashflow cycle Source: Venture Intelligence
/ tax and VATVAT quarterly or semianuallyTax monthly (10 rates pr. year)Final tax statement 1st of July
/ cash flow budgetCash – start of month+ Incoming payments- outgoing payments= Cash – end of month…sounds simple, doesn’t it
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
/ 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
/ …but remember…delayed payments will catch upwith you in the end, so you’d betterget some incoming cashflow fast.