N4 Entrepreneurship & Business Management


Interest on leased plant Lights and power Rent


Repairs and maintenance Stationery Telephones Water


TOTAL MANUFACTURING COSTS


Since you are now only in the planning phase of your business, you do not have the benefit of figures from previous accounting records. You are therefore required to create a projected income statement from scratch. Keep the following in mind: • Your sales forecast for your first year will help you calculate your “cost of sales” (See Module 4 and next section).


• Your opening stock (Rand value) is directly related to your first month’s sales forecast.


5.2 Budgeting


A budget is a financial plan showing future income and expenses on a monthly, quarterly or yearly basis. The purpose of a budget is to • plan the business’s operations, • show if the business’s financial goals are being met, • help the entrepreneur to transform goals into reality, • serve as a control mechanism when it comes to curtailing expenses.


When completed, a variety of questions can be answered, such as: • What profit can the business expect? • What sales level must be achieved? • What fixed and variable expenses can be expected at each level of sale?


The purpose of this section is to estimate the business’s future profitability and overall financial condition for future months. To do this a projected income statement and cash-flow statement must be created. (The latter two will be discussed later). As mentioned, the starting point for compiling the pro-forma statements is budgeting (sales forecast).


5.2.1 The sales forecast – budget


A sales budget is a detailed schedule of expected sales for future periods. Since you have already determined the potential sales figure in your market feasibility study, you will make use of that figure. A sales budget is normally presented in both sales units and the selling price. It is preferable to do your sales budget either on a monthly or quarterly basis. The reason is that some months yield better sales than others do. This will also be beneficial when you complete your cash-flow statement.


1000 2000 6000 1000 500 800


1700 R225000


PAUSE FOR THOUGHT


Many small businesses fail because they have no plan of their financial needs. No entrepreneur should start a business without first creating a sound financial plan for the business and then obtaining enough capital to operate it. The starting point of such a plan is budgeting.


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