Startup budgets

1. / budgets
Financial statements before
start up

2. / budgets for startups
Financial statements before you start up your own business:
Sales prices and calculations —cost pricing or value pricing?
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?

3. / why budgets?
Except from answering the crucial questions above,
the budgets have other purposes:
Bankers and investors will need them to make
decisions about financing.
You will need them to check if the business is
developing according to the plans.
The process gives you a very concrete feeling of what
your business is about.
Only by making the budgets you find out how realistic
your dreams are.

4. / assumptions
Size, share and Employment
growth of target
segment Travel activity
Sales prices Marketing plan
Variations in demand Depreciation rates
Cost prices, gross Interest rates
margin and waste
Terms of payment

5. / operating budget
(income statement)
Sale / Turnover
- Variable costs / used goods
= Gross profit
- Fixed costs
- Depreciation
- Interests
Net profit

6. / 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

7. / 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

8. / 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?

9. / 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

10. / exercise: estimate your sales
Make a rough estimate of your sales by
using one of the methods mentioned.
List your assumptions.
Present your result to another group.
The other group should try to test your
assumptions by asking clarifying
questions.

11. / 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.

12. / 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

13. / exercise:
Make a list of the 10 most important
costs in your business.
Identify the three most important
costs and discuss the level—cost pr.
year.
Discuss whether you could eliminate
or reduce any of the top 10 costs.

14. / 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 % ( Contribution
margin * 100 / Turnover)

15. / contribution margin
Sales price of product/service
- direct costs of products/service
bought from supplier
= Contribution margin

16. Necessary Turnover =
(All fixed costs + Necessary Profit)
* 100 / Contribution Margin %

17. / 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 +/-

18. / cashflow
CASH IS KING

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

20. / your cashflow cycle
Source: Venture Intelligence

21. / tax and VAT
VAT quarterly or semianually
Tax monthly (10 rates pr. year)
Final tax statement 1st of July

22. / cash flow budget
Cash – start of month
+ Incoming payments
- outgoing payments
= Cash – end of month
…sounds simple, doesn’t it

23. 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

24. / 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

25. / …but remember
…delayed payments will catch up
with you in the end, so you’d better
get some incoming cashflow fast.