The importance of budget planning

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).

Sample budget

Budget for 2011 (in CHF)

Expenses

672,000

Revenue

1,040,000

Purchase of equipment

20,000

Services

880,000

Purchase of goods

100,000

Proceeds from goods

120,000

Shipping costs

5,000

Proceeds from licenses

40,000

Foreign workforce

40,000

 

 

National insurance charges (AVS, etc.)

30,000

 

 

Pension fund

28,000

Capital planning

 

Property insurance

4,000

Capital at 1/1/2011

285,000

Business insurance

6,000

Profit for 2011

308,000

Rent

48,000

Dividend/profit distribution

(120,000)

Vehicle leasing

52,000

Capital at 12/31/2011

473,000

Interest from capital/bank charges

18,000

 

 

Maintenance/repairs

5,000

 

 

Vehicle costs

8,000

Reserves (undisclosed)

310,000

Wages (incl. 13th month)

200,000

Reserves on warehouse

130,000

Office equipment

3,000

Reserves on machines

70,000

Printer paper

12,000

Patents, licenses

110,000

Telecommunications

7,000

 

 

In-house training

13,000

 

 

Remaining management costs

2,000

 

 

Legal and accounting fees

6,000

 

 

Donations and contributions

1,000

 

 

Marketing/Ads

40,000

 

 

External services

20,000

 

 

Fees

4,000

 

 

Cash flow

368,000

 

 

Amortization

60,000

 

 

Net profit before tax

308,000

 

 


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Last modification 17.08.2018

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