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Startup Budgeting: The Importance Of Budgeting And Forecasting

Editor — Mon, 27 Oct 2008 09:00:32 +0000

What Are Budgets and Forecasts?

They are predictions of future income and expenses and cash flow. They also predict future performance with financial forecasts and projections and with financial models.

Why Budget and Forecast?

Budgets and forecasts provide a feasibility analysis. They can help develop a business model, review your key assumptions, and identify resource and capital needs. Budgets and forecasts can be used to find funding. They demonstrate the potential of your business to investors and lenders. Budgets and forecasts can also be used as a management tool. They can help you establish milestones and require accountability for accomplishing the milestones. They can help identify risks and show benchmarks. This will help the small business owner make the necessary adjustments to avoid the risks, to reach the milestones, and to measure up to benchmarks.

Why Are Forecast Important?

A forecast can establish measurements to guide management, to facilitate planning, and to facilitate goal-setting.

What Areas Do You Need to Forecast?

It is critical that you forecast your start-up costs so that you know how much it will cost to open your doors. You need to prepare estimated start-up financial statements and estimated short and long-term revenue forecasts. As part of your forecasts, you will review key concepts and issues that will make a difference in your company’s survival. You also need to forecast the resources you will need and set up a schedule for using and replenishing your resources.

Do Investors Want to See Forecasts?

Yes, your forecasts will show investors that you know your business, that you are likely to succeed, and that you will make wise use of their money. You must have at least a five-year forecast that shows significant profit by year five, significant net income by year two, and that investors will earn approximately 10% return on their investment.

Do Lenders Want to See Forecasts?

Yes, your forecasts will show lenders that you know your business and the you will be able to repay the loan. Be sure you forecast for the entire period of the loan and use conservative financial ratios, because the lenders will. Also, you will need to collateralize and personally guarantee the loan.

The investors and lenders will want to see forecasts of your profit and loss and revenue. They will also want to see what drives income in your industry; for example, sales, distribution, advertising, internet search engines, referrals, location, price, or coupons or other discounts. You also must forecast the revenue cycle for your target customer. How much time will you need to start production, and how quickly will your product or service be accepted in the market?

What Other Forecasts Are Needed?

Another important forecast is the total personnel required to support your desired revenue. If your revenues result from sales, you should start with the desired revenue in year 5. From year 5 subtract 40% from each prior year. On the basis of your research, estimate the number of sales each sales person will make each year. From that you can calculate number of salespeople required.

After you make your forecasts, you should complete a sensitivity analysis by adjusting each major item estimated by 10% plus or minus. Examine the impact on revenues, profit, and cash needs. Remember that most operating expenses are roughly proportional to personnel headcount. These are your variable expenses such as salaries, benefits, employment taxes, furniture, computers, rent, supplies, utilities, training, travel, meals, training, and dues. Other non-variable expenses may or may not be proportional such as professional services, subcontractors, advertising, and trade shows.
Use your forecasts to compare yourself to others in your industry by such things as revenue per employee, revenue per salesperson, gross margin, expense categories as a percentage of revenues, financial ratios, and inventory control. It is critical that you know your industry’s benchmarks and metrics and that your business forecasts are within these benchmarks and metrics. You can find this information by researching your industry.

Should You Hire a Business Consultant to Prepare Your Forecasts and Research Your Industry?

Yes! Unless you have a very strong finance and accounting background, you cannot create financials that will be acceptable to investors and lenders. You cannot do an acceptable business plan with a spreadsheet, and it will be difficult for your to be objective in developing your business model. Also, you are the entrepreneur and your efforts are better spent building and developing your business which is what you do best.

Jo Ann Joy, CEO, Indigo Business Solutions

JoAnnJoy@IndigoBusinessSolutions.net, Phone: (602) 663-7007

The future of your business starts here.

For more information about these and other important topics and for legal consultation, please visit our website at http://IndigoBusinessSolutions.net Copyright 2006. Indigo Business Solutions is a registered trade name.

Procurement Budgeting, Procurement Project Finance Planning

Editor — Mon, 20 Oct 2008 09:00:52 +0000

Procurement describes the acquisition of goods or services at the best possible cost, in the right quantity, time and place, for the direct benefit of the firm. The question now arises: how do you prioritize when you only have a limited amount of money to spend? That’s where the role of procurement budgeting comes in.

A budget is a quantitative expression of financial plans. How are budgets useful? Budgets induce management to think systematically about the future. They also serve as a device for coordinating the complex operations of the business, and provide a medium for communicating the financial goals of the firm.

In order to be useful, the budget must be drawn up for a specific time period. Usually, the budget is drawn up for a year. The operating budget for the firm may be constructed in terms of programs or responsibility areas. The program budget is developed in terms of products that are regarded as the principal programs of the business. Such a budget shows the expected costs and benefits of various products and services.

A cost center is responsible for keeping track of costs and expenses. To assess its performance, the actual costs are compared with the budgeted costs. The latter represent expenses that should have been incurred, given the actual activity level. The variance between actual costs and budgeted costs is analyzed for control purposes.

What is the base for preparing the budget? A commonly used base is the level of operations in the current year. Using this, the expected and planned changes in the forthcoming year are identified to develop the budget for that year. Under this approach, referred to as the incremental approach to budgeting, the focus of budgeting is on the operations during the budget period.

In every firm, there is a critical factor which sets a limit to its level of activity. Often, the expected demand is the limiting factor that defines the scope and level of operations. When the demand is fairly strong, the limiting factor may be the production capacity of the firm, which cannot be augmented in the short run. For firms that do not have easy access to the capital market, finances may be a limiting factor.

Procurement provides detailed information on Procurement, Procurement Software, E Procurement Solutions, Procurement Management and more.

Article Source: http://EzineArticles.com/?expert=Alison_Cole

Business Budgeting: Budgeting for your Business

Editor — Mon, 29 Sep 2008 17:20:36 +0000

A well made budget is critical to the survival of your business. Budgeting for your business will help you track the flow and progress of your business by providing you with a picture of how much you are spending and what you are earning in return. You will know in which areas you are exceeding your projected spending limits, allowing you to make the necessary changes to control your expenses and reap a profit.

You can prepare budgets for a specific activity such as marketing and advertising or a special project, in addition to one consolidated budget for your small business. By creating a business budget, you will have taken the first step to understanding where you need to trim expenses, how long your cash flow will last or how much cash must be maintained as reserves. Budgeting is not only an art but a learning process by itself. Be prepared to give it time before your confidence level improves.

When setting up your budget, it’s always a good idea overstate your expenses and keep your revenue expectations low. But at the same time, don’t let it dictate your business. There might be times when you need to spend more than what you initially intended to. If it is going to benefit your business in the long run, go ahead and make the necessary changes to your budget. Remember that budgets are works in progress that need to be continuously revised.

Know that your budget projections are a best guess estimate and nothing more. There will be times when you miss your estimates. Be willing to learn and correct your mistakes. For example, you may be overshooting your telephone budget by a wide margin. What you need to do in this scenario is to take a critical look at your telephone usage and tariff plans and see how they can be optimized.
We’ve put together a few simple tips to help you make the most of your budgeting exercise:

Set maximum spending limits and monitor your budget closely. When your expenses approach the limit, make quick adjustments if possible.

Watch your cash flow. Keep checking to make certain that your revenues match your expenses.

Be realistic with your projections.

Go over your budget every month and examine your cash flow to make sure you have available funds to meet your expenses.

Create a contingency fund when your revenues are more than your expenses. Who knows when you might suddenly be in need of cash?

Living within a budget is not easy. You should be willing to be flexible. For instance, if your revenues don’t match your expectations, trim back your expenses to compensate. Conversely, if you are earning more than you anticipated, now is the time to invest in those business development measures you have been putting off so far.

Posted by: Akhil Shahani
Article Source: http://EzineArticles.com/?expert=Akhil_Shahani

Business Budget Planning – Creating a business budget

Editor — Wed, 20 Aug 2008 16:12:50 +0000

Following on from planning your business, you will need to perform adequate steps to have efficient business budgeting. Creating, monitoring and maintaining an efficient business budget is absolutely key to your businesses everyday operation and hopeful successes further down the line.

The purpose of business budgeting is to help you and your business colleagues to allocate funds and investment when and where they are most needed. Business budgeting doesn’t have to be overly complicated, it really only becomes complicated when your business hasn’t had adequate time spent on formulating a cash flow budget.

There are a couple of simple methods of thinking about your business budget. You need to ascertain what you think you are likely to earn, in what period, and in what areas you are likely to need to spend the budget. For instance, you may be taking in a certain amount of revenue per month, most of which is being used to fund other costs, perhaps on marketing materials.

You can begin by asking yourself;

What the projected sales are for the budget period?
What will your direct costs of sales be?
Do you have any fixed costs or long term overheads?

You then need to break down the fixed costs and overheads down into types and form a business budget planner.

It is worth mentioning that your business will probably have a number of different types of expenses and you may need to divide these up quite considerably until you can categorise them efficiently. Be sure to include your own salary into the expenses too, if your business has reached a level where you can afford to pay yourself that is.

Finally bring all of the figures together, and this is how you produce the income and expenditure tables to work out how much money you’re making and therefore how you may need to adjust your business budget planning accordingly.