Businessman Andrew small firm, and his grandfather worked in the USSR state planning Committee. Gosplan was a powerful organization — he has for decades been taken into account in the budget of a huge country of hundreds of thousands of factors and variables. But for all the changes to follow was impossible, life was difficult forecasts and plans, and one of the systemic crises led to fatal consequences. Andrew at the other extreme, the firms budget he plans “on the knee”, explaining that in times of crisis, any plan is most similar to the calligraphic exercises using a fork and water. Gosplan has been through dozens of crises.
The firm of Andrew in danger of closing next year. To avoid this, Andrew will have to answer yourself a few questions: If Andrew will address this question to his grandfather, he will receive a simple and clear answer. A sustainable budget is a budget in which the firm is running smoothly. This budget should include making a profit and generating positive cash flow.
So the first thing you need to pay attention to the planning of income and expenses and calculate cash flow. Generally, budgeting starts from the planning of revenues. For greater clarity, lets use numbers and imagine that Andrew asked grandpa to help with budgeting and explain all the strange not-too-complicated language. Grandfather asked Andrei to make a simple plate revenue plan for the quarter: Now we need to calculate the planned costs.
They can be expressed in percentage verucchi in absolute amount. Costs may be fixed and variable. Andrew made up a second plate. The budget of income and expenditure for the 4th quarter. ? Look, grandfather, happily said Andrew, I will have a profit, that is all fine.
Well, Im off.. Thank you, I smoothies. ? Take your time, grandpa shook his head, still need to assess whether your profits to generate cash flow. And will be enough to Finance the work of the company. And for this we should create a planned balance and budget cash flow. ? And what do I need.
? puzzled Andrew. ? Need to know the indicators of turnover of assets and liabilities of your company. If you have data for past months you can use them. If not, you can schedule, based on anticipated conditions of work with suppliers and buyers. Data Andrew was.
His firm ships the goods to the buyer without payment, prior to the receipt from the buyer of payment, on average it takes 35 days. Turnover ratio (monthly value) is 0.85, that is, during the reporting month to the accounts of the company receives 85% of the amount of trade receivables. To determine the planned receipt of funds from buyers in October, Andrew need to know how many they have at the beginning of the month. Andrew will look at the balance of the company and see what buyers have 900 000 rubles. So, you can plan that in October, the account will be credited 85% of this amount, 765 000 rubles.
? Well, grandfather, I understand. An important indicator, it is necessary to consider. Whats next?. ? Then lets look at other data that you have. I can see that coming in your warehouse the goods are sold on average 21 days.
This is an important figure. I also see that this month your firm sells 1.42 times more goods than there are in her inventory at the beginning of the period. All because my grandfather, said Andrew, and I think I understand what youre getting. Now we can calculate the required inventory in November. To one side of product enough, and with another — that it was not too much and it lay dormant.
Looking at the second table and see that in November we plan to ship the goods on 520 thousand (string variable costs). Using the turnover ratio of 1.42, produced by a simple arithmetic operation. 520 000/1,42=366 197. And it turns out that at the beginning of November in our warehouse and should be the goods in the amount of 366 thousand. Similarly, the planned inventory to other months.
? Thank you. I must go, grandfather. ? Will run you from creditors if you do not learn at least the basics of good planning. So lets see what youve got with suppliers.
Debt suppliers accounts receivable, that is, you work with them on a prepaid. The turnover period according to calculations with them, you is 18 days, that is, the goods to the warehouse receives on average 18 days after payment. The turnover ratio to 1.66. As we already with you considered it, you need to at the beginning of November lay in stock of goods in 366 000. This means that you need to make a Deposit..
? Wait, grandfather, myself. 366 000/1,66=220 481. Two hundred twenty thousand payment if roughly. The same scheme will be considered and in advance to other months. Now all?.
All, my grandson, all. If you are not interested in the risks that must be considered when planning. ? Very interested. ? I thought so. So put the kettle on, give me the cupcake itself can take a cupcake, just dont mix them up, and continue.
The work your firm scheduled in a way that provided a profit and generate cash sufficient to pay all necessary expenses. This is great, but you need to determine the risks to which sensitive your budget. The main risk factors are the same indicators that are used in the planning. Let me draw a sign for clarity:
So, you need to be afraid of revenue decline, the fact that the buyers will not pay on time or suppliers will require a greater advance payment and t. It is not always possible to determine the probability of each risk, as required by the classical theory of risk management. But you can try to estimate the probability of occurrence of an event and its negative consequences. And how is it measured.
? Andrew had no idea that it can be done. Lets consider the example of such factor as revenue. How it should fall, that it was critical. There is no exact answer, but usually it is the break-even point. It can be calculated by dividing the fixed costs of the firm at its marginal profitability.
? Tell me more, as I calculate, — Andrew asked, moving closer to a iPad. ? Look, — the grandfather looked up in table 2, which drew Andrew in the beginning of the conversation, — per quarter fixed costs of your company is 450 thousand, 150 thousand per month. On variable costs do you account for 65% of revenue, that is, the yield is 35%. Quarterly revenue corresponding to the break-even point is 1 million 275 thousand (450 000/0,35). As scheduled in the amount of 2 million 100 thousand.
This means that your planned revenue could fall by 60,8% of the loss. ? Its not bad — Andrew perked up — there is much to fall. ? Now look at this risk factor, as the share of variable costs in revenue. With revenue of 2 million 100 thousand fixed costs are expected to amount to 450 thousand. That is, if your firm will work to “zero” if the difference between revenues and fixed costs will go to the funding of variable costs.
You can afford the variable costs in the amount of 1 million 650 thousand (78.6% of revenue). And they scheduled your firm in the amount of 1 million 365 thousand (65% of revenue). Accordingly for you to be critical of the growth of variable costs is more than 13.6% (78,6% minus 65%). “Wait,” Andrew was worried — from these figures is that if the supplier will raise the price for me is only 14%, I will start to work at a loss. I never would have thought.
? It turns out that way. Grandfather sighed, Listen to me, Andrew. Planning is not a fad and not a lot of big companies. It is not the level of the state planning Commission. Planning is a necessary stage in the company.
For example, we havent considered what percentage reduction of payments from buyers will be fatal for you. Or do you know?. ? No. ? said Andrew dead voice. ? Well, you see.
When you plan a budget and consider the risks you are unable to think in advance on how to prevent them. And without this, the budget of your firm cannot be sustainable. What it may lead — you know it. Andrew did as advised by his grandfather and received a sustainable budget.
After five months, vendors have increased the selling price. Three competitors Andrew went bankrupt, two others are on the verge. Firm Andrew was ready to such turn, has taken steps and continues to evolve. Based on real events. Source of clever ideas grandparents — article Yegor Egorushkina, partner, Director of project management office, business coach consulting group “Here and Now”.