/ budgets

Because a plan withoutnumbers is just a dream!

/ programme – day1

Introduction to budgets

Establishing budget

Budgeting sales

Budgeting costs

The operating budget

/ programme – day 2

Sensitivity

Cash flow

Financing

Presenting your budget

EXTRA

– Phase by phase budgeting

/ why budgets?

Banks and investors will ask for them

Reality check

Understand how your business works

Measurable goals

/ but how is it possible

to predict?

/ how to think about budgets

ARE NOT

A prediction thatcan only be wrong

ARE (CAN BE)

Goal to strive for

Creative limitations

Assumptions to correct

Simulations

/ so what do we

want to know??

/ we want to know

Is 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 it running?

/ 4 budgets for startups

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?

Establishing budget

How big an investment will it take to get started?

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

Vareindkøb:

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

kr. Konceptudvikling Teknisk udvikling 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? - also includes the sales budget

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

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/reklam

e 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

/ cashflow budget

Cashflow budget—how much finance will it take to start up and get through the first years.

aug-10 sep-10 okt-10 nov-10 dec-10 jan-11 feb-11 mar

Cash primo 175.000 -436.820 -403.890 -283.440 -177.534 -397.226 -81.056 -289.359

Earnings before depreciation -98.870 -15.220 -4.600 152.306 -27.442 -101.130 230.847 461.973

Debtors – changes -231.500 -116.500 105.000 -270.000 110.000 445.000 -1.090.000 -2.430.000

Creditors – changes -620.000 153.200 20.050 223.600 -396.850 121.900 661.850 1.096.900

Stock - changes 263.550 11.450 0 0 94.600 -94.600 0

VAT - changes 75.000 0 0 0 0 0 0

Operations liquidity -611.820 32.930 120.450 105.906 -219.692 371.170 -197.303 -871.127

Fixed assets -55.000 -11.000 -35.000

Fixed assets liquidity 0 0 0 0 0 -55.000 -11.000 -35.000

Loan

Added capital, total 0 0 0 0 0 0 0

Liquidity +/- -611.820 32.930 120.450 105.906 -219.692 316.170 -208.303 -906.127

Cash ultimo -436.820 -403.890 -283.440 -177.534 -397.226 -81.056 -289.359 -1.195.486

/ financing budget

Financing budget—where is the money going to come from?

Capital need I alt

Huslejedepositum 45.000

Lokaleindretning 175.000

Maskiner og driftsmidler 150.000

Inventar 50.000

Varelager 25.000

Dankort og kasseapparat 25.000

Driftskapital 85.000 555.000

Kapitalbehov 555.000

Finansieringsforslag

Sælgerkredit moms 30.000

Leverandørkredit 25.000

Driftskredit 500.000 555.000

Finansieringskapital i alt 555.000

/ exercise

Establishing budget and project plan

Phase Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Description

Milestones

Duration

Activities

Resources

Partners

Need for

funding

/ exercise:

Sales/profit goals

/ estimate your salesfive methods

Buttom 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 back

General standards – What is typical for similarbusinesses?

/ average revenue

Industry Avg.

revenue

with 1-4

employees

Avg. Revenue

1-3 years in

business

Avg.

Revenue pr.

employee

Revenue pr.

employee—

top

performers

Candy stores $68,666 $92,191 $37,707 $51,030

Bars and

nightclubs

$100,029 $176,409 $30,979 $38,305

IT Consulting $166,187 $486,545 $151,152 $186,156

From Entrepreneur.com

/ gearwheels of your budget

Identify the drivers that makeyour engine run

/ example: Selling your hours

Price pr. hour

Invoiced hours pr. week

Your 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 order

Order size – average or categorized

Order frequency

Seasons

Time to recruit and train new employees

/ your sales formula

Price pr. hour

Max. invoiced hours pr. week

New custmers pr. week/month

Reorders

Average order pr. customer

Season

/ exercise:

Define your gearwheels

/ operating budget (income statement)

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

Net profit

/ 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

/ 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

/ estimating your costs3 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 onstatistical data.

/ assumptions about costs

Price pr. m2

Manhours

Salary

Other costs of staff

Travel activity

Marketing plan

Depreciation rates

Interest rates

Etc.

/ 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

/ 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 ratio ( Contribution margin * 100 / Turnover)

/ contribution margin

Sales price of product/service

- Direct (variable) costs of products/service

= Contribution margin

Necessary Turnover =

(All fixed costs + Necessary Profit)

* 100 / Contribution Margin %

/ 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 +/-

/ sensivitivty

RESULTAT 1 RESULTAT 2 RESULTAT 3

Omsætning 950.000 1.200.000 1.550.000

Vareforbrug -285.000 -360.000 -465.000

Personaleudgifter -107.250 -143.000 -264.550

Lokaleomkostninger -195.500 -215.500 -242.000

Salgsomkostninger -29.000 -35.500 -43.000

Administrationsomkostninger -32.750 -34.300 -36.350

Driftsomkostninger i alt -649.500 -788.300 -1.050.900

Resultat før afskrivninger 300.500 411.700 499.100

Afskrivninger -95.000 -100.000 -105.000

Resultat før finansiering 205.500 311.700 394.100

Renteudgifter -35.000 -35.000 -35.000

Renteindtægter 0 0 0

Finansiering i alt -35.000 -35.000 -35.000

Resultat 170.500 276.700 359.100

/ cashflow

CASH IS KING

/ cashflow budget

Your cashflow cycle

Tax and VAT

Cashflow budget

/ your cashflow cycle

Source: Venture Intelligence

/ tax and VAT

VAT quarterly or semianually

Tax monthly (10 rates pr. year)

Final tax statement 1st of July

/ cash flow budget

Cash – start of month

+ Incoming payments

- outgoing payments

= Cash – end of month

…sounds simple, doesn’t it

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

/ how to improve your cashflowa few ideas

Don’t be optimistic to tax authorities

Cash credit in stead of loan with immediaterepayment

Pay your suppliers later

Make your customers pay earlier – fx through cashdiscount, 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 up with you in the end, so you’d betterget some incoming cashflow fast.