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Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll BUDGETTING a Start-up Types: 3 main + subsidiaries Methodology Case Why bother.

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Presentation on theme: "Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll BUDGETTING a Start-up Types: 3 main + subsidiaries Methodology Case Why bother."— Presentation transcript:

1 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll BUDGETTING a Start-up Types: 3 main + subsidiaries Methodology Case Why bother Quantify perspectivesGet people involved Determine cash requirementsGet your venture funded - Cashflow management by budget supervision - and managed

2 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll BUDGETTING PROCEDURE Business model finalized Markets identified and quantified Market penetration scenaria outlined -> samplesample Company operations scenaria determined Sub-budgets on sales and production Sub-budget on company operations => INITIAL INVESTMENT BUDGET CASHFLOW BUDGET CAPITAL REQUIREMENTS are determined BUDGET on PROFIT & LOSS BUDGET on ASSETS & LIABILITIES

3 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll INITIAL INVESTMENT BUDGET (Start-up budget) Input: Price on facilities, machinery, buildings etc. Capacity needed to get up - and to expand Objectives: define your initial investments Sample The early-stage going concern scenario - defines your need for working places, buildings, production tools, computers, vehicles etc.

4 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll CASHFLOW BUDGET CFIMITYM Cash Flow Is More Important Than Your Mother (Ken Morse, MIT) Budget entries : ALL in- and outgoing cash transfers in a time domain (When they happen, NOT when they are registered) Information: The total amount of cash flowing in and out - per time unit Accumulated cash flow (cash in hand) NEVER negative: that defines your capital reguirements (Infuse capital until this precondition is met) Consequences: Economical and financial management Your argument for capital First indicator of value creation

5 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll Cash Flow Budgetting Sample SALES and PRODUCTION Outgoing payments to production and incoming payments from sales are derived from: Unit costs Market potentials Market penetration in the time domain MARKETING and OPERATIONS Outgoing payments to run the company are derived from Sales & Marketing expenditures Rent, running costs, salaries IPR (patents), R&D (development) expenditures Capital expenditures Add all outgoing (+) and incoming (-) payments to determine cashflow (Q [DKK/month]) and cash-in-hand (∑Q [DKK]). Adjust with appropriate cash injections (loan, equity capital) to create a positive cash-in-hand throughout the project

6 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll Budget on Profit & Loss Precondition: the cashflow budget Covers an extended period eg.: 1 year = Annual results Objectives: analysis, perspectives, key figures, profitability Consequences: Trim your business Benchmarking against your competitors’ performance Benchmarking against your own previous performance Sanity check via key-figures T/O development timewise T/O per employee Profit margin Sample

7 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll Budget on Assets and Liabilities - 1 Objectives: Determine value creation Present financing Keep track of deptors and creditors Check minimum legal equity Consequence: Solvency = capacity to withstand losses is determined The development of values over time is quantified The dilligence in getting payments from customers is demonstrated

8 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll Budget on Assets & Liabilities - 2 Assets = Values owned by the company Liabilities = How are said values financed Assets = outstanding amounts owed to the company, cash, IPR, goodwill, buildings, cars, production facilities depreciated to value as per to day. Liabilities = invested capital, accumulated profit/loss, outstanding amounts owed by the company Invested capital + cumulated profit/loss = equity capital Budget on Assets & Liabilities is the last to complete Sample

9 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll Budget Processing Review 1. Business model + strategy 2. Market research & analysis 3. Unit costs (hours and/or products) 4. Market entry scenario 5. Initial costs/investments 6. Business burn rate (running costs) => 7. Budget on Cashflow => 8. Capital demand 9. Budget on Profit & Loss => Turn over & Profit margin 10. Budget on Assets & Liabilities

10 Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll Sample


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