This document discusses the importance of budgets and financial planning for games businesses. It explains that budgets allow businesses to plan operations, meet goals, and prepare for difficult financial times. The document then outlines key concepts for creating a budget, including variable costs that change with sales, fixed costs that remain constant, and break-even point which is the sales level where costs equal revenue. It stresses the importance of monitoring budgets by comparing actual figures to the plan on a monthly basis and making adjustments.

1. BTec Level 3
Extended Diploma in Creative Media Production – Games Design

2. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry

3. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
What is a budget and why do I need one?
A budget is probably the most important tool a business can have.
It provides a game plan for not only long-term business
operations, but day to day operations as well.
Properly used, a budget can help a business meet its goals, help it
become more profitable, and give it the edge in getting through
tough financial times.

4. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
What does it achieve?
There are two (often overlapping) reasons for producing a budget.
One is to persuade potential investors that your company is a
good bet.
The other one is to plan your business finances - how much money
do you have and how do you plan to use it? How much revenue do
you need to generate to achieve your target profit? Is your
business plan viable or does it need adjusting? In retrospect, did
the year pan out the way you planned, or did something go
wrong?

5. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
How do I create a budget?
There are three concepts you need to understand: variable costs,
fixed costs and break-even point.

6. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
Variable Costs
Variable costs are those expenses in your business that increase or
decrease with the level of your sales. For instance, if you sell
hamburgers, your variable costs would include the cost of the
meat, the buns, condiments as well as packaging.

7. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
Variable Costs
As a general rule, your variable costs can always be expressed as a
percentage of your sales. For instance, if the cost of buns, meat,
etc. for a hamburger that sells for £1 is 60p or 60%, then you can
assume that if you sell ten hamburgers or £10 in sales that your
variable costs will be 60% of that or £6.
With this data you can figure your gross profit and gross profit
percentage.

8. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
Variable Costs
Sales - Variable Costs = Gross Profit
£1 – 60p = 40p
Gross Profit ÷ Sales = Gross Profit Percentage
40p ÷ 100p = 40%
This is a very important concept because it allows us to determine
the net effect of increases and decreases in sales.

9. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
Fixed Costs
Fixed costs are those which you will incur whether you have any
sales or not. These would include such items as rent, utilities,
certain labour, insurance, etc.
Unlike variable costs, fixed costs do not increase or decrease with
changes in sales. Therefore, the greater your sales, the less of an
effect your fixed costs will have on your net profits.

10. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
Fixed Costs
Here's how to determine net profit:
Gross Profit - Fixed Costs = Net Profit
Fixed costs are only valid within a certain range of sales or activity.
If sales exceed that range, fixed costs will jump to a new level. For
example, you may be able to produce 100 hamburgers per hour
with one employee, however, to produce more than that you
would have to hire more help.

11. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
Break Even Point
The break-even point is, as the name implies, the level of sales
where you neither make money nor lose money.
It is the level of sales where the gross profit is the same as the
fixed costs. Using our hamburger example, we will assume fixed
costs are £400, we have £1,000 in sales and our gross profit
percentage is still 40%.

12. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
Break Even Point
Since we sell hamburgers for a £1 each, we must sell 1000
hamburgers to break even.
The break-even point is important for two reasons: one, it lets us
know what volume we must sell to keep from losing money. And
two, with a little modification, it will also tell us how much we
must sell to produce a given amount of net profit.

13. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Financial Planning Budgets
Monitoring
Once you have set up the budget, compare it to the actual figures
every month, to look for differences and establish why they are
there.
Adjust expenditure or sales efforts as you go along, to bring the
next group of numbers in line with the budget.

14. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Sources:
http://jeffsailor.com/jcpa/resource/budget.html
http://www.book-keeping.org.uk/blog/show,www-mark-gwilliam.com/

15. BTec Level 3
Extended Diploma in Creative Media Production – Games Design
Unit 13 - Understanding the Games Industry
Activity
1.Produce an account of why financial planning is so important
within the games industry, ensuring you have included the
following concepts:
•Variable Costs
•Fixed Costs
Once completed, upload your descriptions and illustrations to your
Unit 13 Blog to a post named: HA1 Task 4 – Financial Planning.
Again, illustrate as required and remember to cite any sources you
have used in your research, both written and visual.
• Break Even Point
• Monitoring