Budgets 2012

Budgets

Because a plan without numbers is just a dream!

What do we want to know?

• What will it take to get to get started?

• When will we make profit?

• What should our products cost?

• What will we need to keep our business running?

• How much money do we need to get?

…or in investor terms

• 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 it running?

The budgets

• Establishing budget

• Operating budget / income statement

• Sales prices and calculations

• Cash flow budget

• Funding budget

• Budget assumptions

Why budgets?

• Banks and investors will ask for them – no budget, no funding

• The vision becomes very real

• Understand how your business works

• Measurable goals

But how is it possible to predict?

Forget about predicting…

… it is impossible to predict for startups – and the ”getting it corret” mindset is blocking!

A startup is always an experiment…

… and the nature of an experiment is to test whether your assumptions are right!

…see budgets as

• A financial simulation model where you can test different assumptions.

• A management tool for monitoring and measuring whether your assumptions were right.

• Goals to strive for.

• Creative obstructions: How do we obtain…?

Establishing budget

A “shopping list”

• How big an investment will it take to get started? (expenses before launch)

…or a development plan

• Phases of product- and business development and costs of each phase

COSTS Kr.

Premises:

Rent 18.000

Deposit (3 months rent) 50.000

Goodwill 50.000

Decoration and renovation 0

Shop interior and equipment:

Pallet stacker 10.000

Stock:

Take over stock 50.000

Purchase new goods 50.000

Car:

Downpayment, car 40.000

Advisors:

Advice from accountant, lawyer etc. 10.000

Marketing:

Marketing materials 5.000

Total costs: 283.000

DKK Concept

development

Technologial

development

Proof of concept

Wages 800.000 200.000 500.000

Softwaredevelopment 3.000.000

Videoproduction 200.000

Other external salaries 50.000 100.000 120.000

Premises and office 70.000

Travel and transport 40.000 60.000 80.000

Marketing and sales 500.000

Total costs 960.0000 3.360.000 1.400.000

Operating budget

• How big a profit do I expect to earn and how soon?

• One or more years – at least until profit

• Monthly basis year 1

Extra

• Best/worst case or sensitivity analysis

Operating budget (income statement)

• Sale / Turnover - Variable costs / used goods = Gross profit/Contribution margin - Fixed costs - Depreciation - Interests

• Net profit

Turnover 1.200.000

Goods sold -360.000

Staff -143.000

Premises -215.500

Sales costs -35.500

Administration costs -34.300

Operating costs, total -788.300

Earnings before depeciation 411.700

Depreciation -100.000

Earnings before interest 311.700

Interests -35.000

Net profit 276.700

Ex: Small retail shop

3 year 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

Note 1: Sales budget

Net turnover

2009 2010 2011

Product A 3.460 5.260 7.960

Product B 3.290 4.700 4.700

Total 6.750 9.960 12.660

For tiden 1 /9 2010 til

31 /8 2011 Sept. Okt. Nov. Dec. Jan. Febr. Marts April Maj Juni Juli Aug.

12 mdr. i

alt

Varesalg 250.000 250.000 300.000 400.000 200.000 250.000 250.000 350.000 250.000 250.000 150.000 200.000 3.100.000

Vareforbrug 185.000 185.000 240.000 300.000 160.000 185.000 185.000 250.000 185.000 185.000 115.000 160.000 2.335.000

Dækningsbidrag (DB): 65.000 65.000 60.000 100.000 40.000 65.000 65.000 100.000 65.000 65.000 35.000 40.000 765.000

Faste omkostninger

Løn 0 0 0 0 0 0 0 0 0 0 0 0 0

Lokaleomkostninger 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 18.000 216.000

Drift 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 24.000

Administrationsomkostninger 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 60.000

Markedsføring/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 12.000

Uforudsete omkostninger 5% af

faste 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 15.600

Fasteomkostninger i alt: 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 27.300 327.600

Resultat før renter og

afskrivninger 37.700 37.700 32.700 72.700 12.700 37.700 37.700 72.700 37.700 37.700 7.700 12.700 437.400

Renter 0 0 0 0 0 0 0 0 0 0 0 0 0

Afskrivning, 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 12.000

Faste omkostninger - renter og

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 28.300 339.600

Nettooverskud 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

Monthly budget

Sensitivity analysis Scenario 1 Scenario 2 Scenario 3

Turnover 950.000 1.200.000 1.550.000

Cost of goods sold -285.000 -360.000 -465.000

Wages -107.250 -143.000 -264.550

Premises -195.500 -215.500 -242.000

Marketing -29.000 -35.500 -43.000

Administration -32.750 -34.300 -36.350

Total costs -649.500 -788.300 -1.050.900

Earnings before interest and depreciation 300.500 411.700 499.100

Depreciation -95.000 -100.000 -105.000

Earnings before interest 205.500 311.700 394.100

Interest -35.000 -35.000 -35.000

Net profit 170.500 276.700 359.100

Estimating your costs 3 methods

• The hard way – estimate and calculate cost by cost.

• The direct hands on way – speak to experts – fx entrepreneurs or accountants.

• Rough estimates – based on statistical data.

Assumptions about costs

• Price pr. m2

• Manhours

• Salary

• Other costs of staff

• Travel activity

• Marketing plan

• Depreciation rates

• Interest rates

• Etc.

Reality check: Average industery 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

BENDTSEN start og udvikling Tel.: +45 4076 7559 Skype: jan-bendtsen E-mail: jb@janbendtsen.dk janbendtsen.dk Forretningsplaner.dk BeingEntrepreneur.eu

I just love to build the future…