Module 8 • The fi nancial plan


The second budget that you are required to complete is an expense budget, fixed costs and variable costs.


5.2.2 Operating expense budget


The operating expense budget refers to all the operating expenses that you can expect. Use the pro-forma income statements as a guideline. The manufacturing business presents a challenge since it has many variable overhead expenses like labour and materials.


Activity 4 The budgeted Income Statement for your proposed business plan


The Income Statement must now be drawn up given the budgeted figures. The income statement examples and the budgets should guide you in creating your own income statement. Although you are completing your income statement at this stage it might be advisable to do it after your cash-flow statement.


5.3 Cash-fl ow statement


A forecasted cash flow statement deals with the flow of cash in your business. In other words, it is about money coming into the business and money going out – money in vs. money out. Anything bought on credit, sold on credit, owed to you or the other way around is not shown on your cash-flow statement. It is only when money has been received or paid that it is shown on the cash flow statement. A cash flow statement is a method of avoiding cash shortages or anticipating when they will occur. This will leave you with enough time to find additional funds. You need to do certain projections to be able to compile a cash flow statement. The most obvious is ... yes, your sales figure!


Income Statement vs Cash-flow-Statement Income Statement


• Shows how much you paid and received during that year.


• Deals with the past; is a summary of what has happened, normally for the past financial year.


IMPORTANT


Remember that you must budget for both fixed and variable overheads.


Cash-flow Statement


• Deals with the future, • All the figures in a cash-flow statement are estimates.


• A cash-flow statement is done on a monthly basis for a year in advance.


Cash-flow calculations To compile your forecast cash flow statement, you will have to determine the approximate figures of the following: • Your expected monthly sales volume (how many products you expect to sell) • The percentage of cash sales and the payment patterns of debtors (people who owe you money).


• The cash payments you will need to make to your suppliers • Your fixed monthly costs, all those monthly payments such as rent and electricity


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