What is a budget?
A budget is one of the most important financial planning tools you will use for your business. Your budget helps give you an in-depth understanding of the financial workings of your mini-company.
Why do I/we need to prepare a budget?
- Your budget lets you know how much money you need to start-up your business
- Your budget lets you monitor your business performance on a regular basis. It lets you know if you need to change anything and if you are not meeting your targets.
- Your budget will make sure that you are open to as few financial risks as possible in your business.
How do I/we prepare a budget?
- The best type of budget for you to prepare for the SEAs is a ‘Cash-flow Forecast’.
- You can do this either on a weekly or a monthly basis. For the purposes of this module we will work on a monthly basis.
- The work you did back in Modules 4 and 7 on Market Research and Pricing Your Product will come in useful here. Make sure you have this information to hand when you start preparing your Cash-flow forecast.
To give you a good idea of what you need to do in preparing your Cash-flow forecast have a look at this example.
Now that you have a better idea of how to prepare your Cash-flow forecast it’s time to prepare your own cash-flow forecast.
Follow this step-by-step guide and use our ‘Cash-flow forecast template’ document to record your details. You can print this out and include in your Business Report at a later date.
Step 1: Give details of your start-up funding
When you are starting your business there are three types of start-up money available to you:
- a. Your own money (When invested in your business this is known as ‘Equity Investment’).
- b. Someone else’s money (When invested in your business this is known as a ‘Loan’).
- c. Sponsorship
Details of your start-up finance will need to be included in your Cash-flow forecast under the ‘Income Column’. You need to distinguish how much of this is in the form of your own Equity and how much is in the form of loans.
Step 2: List your estimated sales and expenses
Once you have worked out your estimated start-up income from loans and equity, you need to estimate what your sales and expenses will be for each month.
When filling out the ‘Sales Value’ column for each month, make sure you keep in mind when your busiest and quietest times will be and make sure your sales estimations reflect this. For example, if your product is Christmas themed, then you should expect to sell more units in November – December and to sell less in January and February.
When estimating your expenses for each month, be as specific as you can be. List out all possible expenses in the ‘Expenditure’ column for the business for example wages, materials, promotional and travel costs.