1. / budgets
Because a plan without
numbers is just a dream!

2. / programme – day1
Introduction to budgets
Establishing budget
Budgeting sales
Budgeting costs
The operating budget

3. / programme – day 2
Sensitivity
Cash flow
Financing
Presenting your budget
EXTRA
– Phase by phase budgeting

4. / why budgets?
Banks and investors will ask for them
Reality check
Understand how your business works
Measurable goals

5. / but how is it possible
to predict?

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

7. / so what do we
want to know??

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?

11. Establishing budget
How big an investment will it take to
get started?

12. 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

13. 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

14. / operating budget
How big a profit do I expect to earn
and how soon? - also includes the
sales budget

15. 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

16. For tiden 1 /9 2010 til 12 mdr. i
31 /8 2011 Sept. Okt. Nov. Dec. Jan. Febr. Marts April Maj Juni Juli Aug. 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

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

18. aug-10 sep-10 okt-10 nov-10 dec-10 jan-11 feb-11 ma
Cash primo 175.000 -436.820 -403.890 -283.440 -177.534 -397.226 -81.056 -289
Earnings before depreciation -98.870 -15.220 -4.600 152.306 -27.442 -101.130 230.847 461
Debtors – changes -231.500 -116.500 105.000 -270.000 110.000 445.000 -1.090.000 -2.430
Creditors – changes -620.000 153.200 20.050 223.600 -396.850 121.900 661.850 1.096
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
Fixed assets -55.000 -11.000 -35
Fixed assets liquidity 0 0 0 0 0 -55.000 -11.000 -35
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
Cash ultimo -436.820 -403.890 -283.440 -177.534 -397.226 -81.056 -289.359 -1.195

19. / financing budget
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

21. / exercise
Establishing budget and
project plan

22. Phase Phase 1 Phase 2 Phase 3 Phase 4 Phase 5
Description
Milestones
Duration
Activities
Resources
Partners
Need for
funding

23. / exercise:
Sales/profit goals

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

31. / exercise:
Define your gearwheels

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

40. Necessary Turnover =
(All fixed costs + Necessary Profit)
* 100 / 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 +/-

42. / sensivitivty

43. 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

44. / cashflow
CASH IS KING

45. / cashflow budget
Your cashflow cycle
Tax and VAT
Cashflow budget

46. / your cashflow cycle
Source: Venture Intelligence

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.