By making a budget, you can better plan your business. You gain an idea of how to ensure profitability as well as control over finances, so that you know whether there will be money to pay the bills. Using our calculation tools, you can make a simple profit and loss and cash flow budget.
In the beginning, you may need to make investments that are necessary to get your business off the ground. A start-up budget shows the costs you have in the very short term and your ability to finance them. The start-up budget includes the bills you need to pay at the start of your business.
Profit and loss budget
Make a simple profit and loss budget with our calculator to determine the extent of sales needed to cover your costs and make a profit. You can also export your budget to Excel.
A profit and loss budget shows the expected profit or loss
A profit and loss budget summarises the company's expected revenues and expenses and the expected profit or loss for a given period, such as a year. The hardest part is figuring out sales volumes, i.e., how much you will earn. An established business can use previous years' sales and make some adjustments when budgeting revenue. It's not that simple in a new company. Budgeting sales volumes in a new company normally requires looking at several factors:
- what the products will cost
- the range of products and services your company will have and how much you expect to sell of different goods and services
- what customers the company will have
- what geographical markets the company will target
- what marketing the company plans to carry out during the year.
Several of the cost items in the profit and loss budget are directly affected by sales volumes, e.g., the cost of goods and personnel costs. Therefore, you should budget revenues before looking at costs.
After completing the profit and loss budget, you will know how much you must sell to cover your costs.
When preparing the profit and loss budget, consider each month's amount separately. This applies in particular to revenues and those costs that are directly linked to revenue, such as the cost of goods. In a business with seasonal fluctuations, it is particularly important that you prepare your profit and loss budget on a month-by-month basis, and not annually.
Rather than being a reflection of reality, a budget is a financial plan with hopes and expectations. So don't get bogged down in the details - try to see the big picture. A well-considered and realistic budget shows the risks and opportunities facing the business. It also supports the achievement of the business's objectives.
Cash flow budget
Make a cash flow budget with our calculator to determine whether your cash funds will be sufficient to cover monthly expenses. You can also export your budget to Excel.
The cash flow budget shows whether you can pay your bills
That your profit and loss budget indicates a profit is important, but it does not give the whole picture. Even if the final balance for the year is positive, cash shortages may arise during the year that leave no money to meet the company's expenses. This may occur when, for example, you have production costs but are not paid until the product is delivered.
A cash flow budget is drawn up to plan for this. While a profit and loss budget shows whether the business is making a profit, the cash flow budget shows whether there will be enough money to cover monthly expenses.
To avoid unpleasant surprises, you should always prepare a cash flow budget along with the profit and loss budget. Otherwise, a lack of liquidity might, in the worst case, bring down the whole company. Then it won’t matter how profitable the company is.
The profit and loss budget is sometimes done on an annual basis, but this is not enough when doing the cash flow budget. Whether you will have money in a year's time won’t matter if, after only four months, you go under due to a lack of liquidity. For that reason, you must prepare a cash flow budget on a monthly basis.
Film: Get a a better overview of your company's finances
Do you want to get a better handle on your company's finances, but don't quite know how to get started? In this video, we show how you, with the help of accounting and a budget, can determine whether your business is making a profit or a loss.
You can turn on English subtitles in the video settings.