Budgeting

4. Preparing Budgets

Use sales and expenditure forecasts to prepare your budgets. Get help if needed.

4.1 Forecast the timing of cash movements.

• How quickly will you be paid for sales?What credit terms do you offer, and do customers pay on time? How much do you need to allow for bad debts?
• When will you pay out for costs?What will you pay in advance (eg annual insurance premiums)? Which supplies do you buy on account?

4.2 Include non-operating cashflow in your cashflow forecast. For example:

• Changes in financing (eg loan repayments).
• Tax and VAT payments and receipts.
• Dividends.

4.3 Prepare a cash budget (see 5.1).

4.4 Prepare profit and loss and balance sheet budgets.

• The profit and loss budget shows your projected profits for the period (eg the next 12 months).
• The balance sheet budget shows your projected balance sheet at the end of the period. It should include capital terms, such as new equipment, minus any capital disposals and should allow for depreciation of assets.
• Include as much detail as you will use in your budget analysis (see 5).