6. / how to think about budgets
ARE NOT ARE (CAN BE)
A prediction that Goal to strive for
can only be wrong
Creative limitations
Assumptions to
correct
Simulations
9. / 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?
10. / 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?
20. 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
24. / estimate your sales
five methods
Buttom up – What is out capacity – if we are
realistic?
Top down – How big is the market and which share
can 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 similar
businesses?
25. / average revenue
Industry Avg. Avg. Revenue Avg. Revenue pr.
revenue 1-3 years in Revenue pr. employee—
with 1-4 business employee top
employees performers
Candy stores $68,666 $92,191 $37,707 $51,030
Bars and $100,029 $176,409 $30,979 $38,305
nightclubs
IT Consulting $166,187 $486,545 $151,152 $186,156
From Entrepreneur.com
26. / gearwheels of your budget
Identify the drivers that make
your engine run
27. / example: Selling your hours
Price pr. hour
Invoiced hours pr. week
Your monthly sales:
– Price x Hours pr. week x 4
28. 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
29. Decision process – time from contact
to order
Order size – average or categorized
Order frequency
Seasons
Time to recruit and train new
employees
30. / your sales formula
Price pr. hour
Max. invoiced hours pr. week
New custmers pr. week/month
Reorders
Average order pr. customer
Season
32. / operating budget
(income statement)
Sale / Turnover
- Variable costs / used goods
= Gross profit
- Fixed costs
- Depreciation
- Interests
Net profit
33. / 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
34. / 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
35. / estimating your costs
3 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 on
statistical data.
36. / assumptions about costs
Price pr. m2 Marketing plan
Manhours Depreciation rates
Salary Interest rates
Other costs of staff Etc.
Travel activity
37. / 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
38. / 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)
39. / contribution margin
Sales price of product/service
- Direct (variable) costs of products/service
= Contribution margin
41. / 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 +/-
47. / tax and VAT
VAT quarterly or semianually
Tax monthly (10 rates pr. year)
Final tax statement 1st of July
48. / cash flow budget
Cash – start of month
+ Incoming payments
- outgoing payments
= Cash – end of month
…sounds simple, doesn’t it
49. 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
50. / 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
51. / …but remember
…delayed payments will catch up
with you in the end, so you’d better
get some incoming cashflow fast.
