Making a budget
With a start-up budget, profit budget and cash flow budget, you can estimate the company's financial future.
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Making a budget enables you to plan your business better. You get a picture of what creates profitability and can keep a check on finances, ensuring bills can be paid.
At the start-up phase, you may need to make investments to ensure your business can actually get off the ground.
A start-up budget shows the costs you will incur in the very short term and your ability to finance them. It also includes the invoices you will have to pay at the start-up phase.
A profit budget is a summary of the company's expected income and expenditure and the projected profit for a particular period, a month for example. The most difficult thing to estimate is how much you will sell, in other words what your income will be. Before you can make a profit budget, you need to have considered
- your range of products/services
- product/service costs
- who your customers are
- your costs.
When you have made your profit budget you know how much you need to sell to cover your costs.
Control with a budget
A budget is not a mirror of reality, but an economic plan with hopes and expectations. It is best not to get bogged down in finer details, but to look at the basic outlines. A good budget shows the business's problems and opportunities. A realistic budget helps to achieve business goals.
Cash flow budget
To avoid unpleasant surprises in the form of sudden bills to be paid, the company must have liquidity. This means the company must have access to cash every month. A cash flow budget shows the difference between the money coming in and the money going out month by month.
A profit budget shows whether the business is making a profit or a loss, while a cash flow budget shows whether there will be enough money to cover the month's expenditure.
To avoid bankruptcy, you need to make a cash flow budget month for month. It is no comfort knowing you will have enough money in a year from now, if you are out of money already in four months. That is why you need short periods in your cash flow budget.
Responsible: Swedish Agency for Economic and Regional Growth