A budget must be as realistic as possible from the outset. Estimating revenue and expenditure is often a challenge for new companies.
A company's budget needs to be as realistic as possible so that year-end results are not completely different from the predictions made at the start of the year. When in doubt, it is always better to err on the side of caution. When a company first launches, estimating expenditure and revenue is often a challenge. In the excitement of launching a new company, financing plans are often unrealistic:
- The top-down approach—where market share, and therefore revenue, is diverted from market volume—is particularly attractive.
- Economic trends are also rarely taken into account when planning a budget. Experience shows that you cannot rely on predictable growth rates year after year.
The different components of financial planning, or budgeting, should be consistent and not contradictory. Otherwise, you will probably have to field some tough questions from creditors. Contradictory information also complicates planning.
A budget is an estimate of a company's expenditure (fees) and revenue (earnings) for the year to come. Older companies will have an easier time estimating these figures. It is simply a question of adjusting the figures from the previous year and the current year to the proportions expected for the coming year:
- Is it possible to acquire new customers?
- Where and how can new customers be acquired?
- Is it possible to lose big customers?
- Where can other costs be cut?
- What are the additional expenses?
If any of this basic information is missing, planning a budget becomes much more difficult—but it is still necessary. It should not be too difficult to come up with a reliable estimate of a company's costs.
When it comes to costs, there are fixed costs (rent and charges, leasing, insurance premiums, etc.) and variable costs, which are directly linked to production (buying goods, energy and transportation costs, customs charges, etc.).
Employees can be considered either fixed costs or variable costs, depending on their category. Administration (management, accounting, reception, etc.) generates fixed costs, whereas employees in production correspond to variable costs (provided that notice periods are short and that staff are flexible).