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

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

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.

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

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

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

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

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

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

Institut for Produktion og Ledelse Danmarks Tekniske Universitet John Heebøll Sample