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Budget and Cash Flow Forecasts

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					      Accounting Reports & Terminology



Budgets & Cash Flow Forecasts



             Report Prepared For:

         CHAMBER MEMBER




                                         Ref 05.35
                                           Page 1
Contents                                                                                                                         Page

1.    Analyse Previous Year’s Performance To Prepare Budgets ............................................ 3

2.    Remote Planning ............................................................................................................. 3

3.    Detailed Consideration To All Aspects Of The Business .................................................. 3

4.    Cash Flow Forecast ......................................................................................................... 3

5.    GST ................................................................................................................................. 3

6.    Blueprint For The Next Twelve Months ............................................................................ 4

7.    Budgeting Should Highlight Potential Troublespots.......................................................... 4

8.    Budgeting Will Help You With Your Bank ......................................................................... 4

9.    Measure Actual Performance Against Budgets/Cash Flow Forecast................................ 4

10.   Budgets Help You Get A Clear Indication Of Where You Are ........................................... 4

11.   Budgets Give Businesses A Better Chance Of Success ................................................... 4

12.   Get Your Accountant To Help You .................................................................................... 5

13.   Different Types Of Budget Formats For Different Types Of Business ............................... 5

14.   Budget Example - Small Retailer ...................................................................................... 5

15.   Reference Codes Used .................................................................................................... 5




                                                                                                                                      Ref 05.35
                                                                                                                                        Page 2
     It is recommended that every business prepares an Annual Budget and Cash Flow
     Forecast.


1.   Analyse Previous Year’s Performance To Prepare Budgets
     When preparing a Budget, you should firstly analyse the previous financial year’s
     performance. What you need to consider is whether you propose to increase turnover
     during the forthcoming twelve months, whether you will employ the same number of staff or
     increase your staff and what other events are likely to occur. For further information, refer
     to Paper 05-15 - "Statement of Financial Performance".


2.   Remote Planning
     Sit down and give yourself the benefit of some “remote planning” to plan what you would
     like your business to achieve.


3.   Detailed Consideration To All Aspects Of The Business
     This will require you to give detailed consideration to a number of separate areas, including:

        Sales (Refer Paper 21.22 - "Sales")
        Production Forecasts (Refer Paper 21.16 - "Production Process")
        Labour Productivity Budgets (Refer Paper 21.33 - "Work In Progress")
        Gross Profit Percentages that you believe are achievable (Refer Paper 06.73 -
         "Introduction To Key Performance Indicators For SME's")
        Investments in Stock (Refer Paper 05.11 - "Stock Management")
        Investments in Debtors (Refer Paper 05.05 - "Sundry Debtors")
        The payment of Creditors (Refer Paper 05.60 - "Sundry Creditors")
        Key expenses such as advertising, wages and salaries, rents and superannuation
         contributions


4.   Cash Flow Forecast
     In preparing the Cash Flow Forecast you should have regard to:
      Loan Repayments
      Taxation Payments
      GST Payments
      Any Capital Expenditure that you wish to undertake
      Any funds that you wish to withdraw from the business


5.   GST
     It is usual to prepare budgets and cash flow forecasts exclusive of GST. This is natural, as
     the GST is not an expense or income item and is simply passed on to or recovered from
     Inland Revenue.




                                                                                            Ref 05.35
                                                                                              Page 3
6.    Blueprint For The Next Twelve Months
      The whole concept of preparing a Budget and Cash Flow Forecast is to prepare a
      “blueprint” for what you would like to see your business achieve during the next twelve
      months.


7.    Budgeting Should Highlight Potential Troublespots
      If you are realistic in your estimates, then the forecast should highlight any potential
      troublespots during the year e.g. you may be going to experience a shortage of funds from
      the payment of income tax in April or from stock buildups in November for Christmas
      trading. There could also be other times during the year when you anticipate problems due
      to seasonal conditions.


8.    Budgeting Will Help You With Your Bank
      If you have planned in advance, it is much easier to make an appointment with your Bank
      Manager, show him/her your Budget and Cash Flow Forecast and Business Plan and make
      appropriate arrangements for financial assistance. For further information, refer to Paper
      11.01 - "Banks And Financiers - An Overview".


9.    Measure Actual Performance Against Budgets/Cash Flow Forecast
      You will then have Budgets and Cash Flow Forecasts against which to measure your actual
      performance during the year, so as to determine whether you are on track in your business
      performance.



10.   Budgets Help You Get A Clear Indication Of Where You Are
      No one expects you to be able to actually achieve budget estimates in every segment of the
      business. That is a virtual impossibility. What the Budget does give you is a blueprint
      against which to measure your actual performance. This will give you a clear indication as
      to where you actually stand on current day-to-day trading as compared to your expectations
      at the beginning of the year when the Budget was prepared. For further information, refer
      to Paper 21.38 - "Budgets/Cash Flow Forecasts Monitoring".


11.   Budgets Give Businesses A Better Chance Of Success
      There is no doubt that businesses which prepare Budgets and Cash Flow Forecasts against
      which to compare their actual performance, give themselves a far greater chance of
      business survival than those firms which do not.




                                                                                         Ref 05.35
                                                                                           Page 4
12.   Get Your Accountant To Help You
      For many small business operators, the preparation of a Budget and Cash Flow Forecast
      will be beyond their capabilities and/or time availability. It is recommended that you have
      discussions with your Accountant relative to the preparation of the Forecasts. However, do
      not pass all of the responsibility over to your Accountant. Remember, you are the one who
      has to make the Forecasts work, therefore you should have significant input into their
      preparation.


13. Different Types Of Budget Formats For Different Types Of
Business
      There are different types of Budget Formats used for various businesses. The one which is
      attached is a sample of the type of Forecast that would be prepared for a retailer.


14.   Budget Example - Small Retailer
      The Budget examples attached are as follows:

      Addendum 5.35A             Forecast Performance for the year

      Addendum 5.35B       (a)   Debtors’ Budget
                           (b)   Creditors’ Budget
                           (c)   Stock Inventory Budget
                           (d)   Sales Summary
                           (e)   Bank Loan

      Addendum 5.35C             Cash Flow Forecast

      Addendum 5.35D             Projected Statement of Financial Position

      Addendum 5.35E             Projected Statement of Cash Flow



15.   Reference Codes Used
      In preparing the Budgets and Cash Flow Forecasts, some reference codes have been used
      to identify the type of payments. These are:

       NC      Non Cash e.g. Depreciation - whilst this is an expense, it does
               not cost the business cash.

       C       Creditors - it is assumed that the business will be able to
               purchase this item on credit.

       P       Prompt Payment - it is assumed that this item will be a cash
               payment.



                                                                                         Ref 05.35
                                                                                           Page 5
                                                                                          ADDENDUM 5.35A
                                               J BLOGGS LTD trading as
                                                  “JIM BLOGGS & CO”
                                                SALES/PROFIT BUDGET
                                                                   st
                                     for the twelve months ended 31 March 2004
                                                                                                 YTD Target
                                                                                                     $
Sales                                                                                               328,000
Less Forecast Cost of Sales:
        Opening Stock                                                                   29,000
        Purchases                                                                      173,280
                                                                                       202,280
Less Closing Stock                                                                      35,000
Forecast Cost of Sales                                                                               167,280
Forecast Gross Profit %                                               49%                            160,720
Less Forecast Overhead Expenses:

       Accountancy Fees                                                          (P)     4,500
        Acc Levies                                                               (P)       570
       Advertising (4% of Sales)                                                 (P)    13,120
       Bank Charges                                                              (P)     1,300
       Cleaning                                                                  (P)        30
       Display Expenses                                                          (C)       180
       Electricity                                                               (P)       500
       General Expenses                                                          (C)       200
       Insurance                                                                 (P)       850
       Motor Vehicle Expenses                                                    (C)     5,200
       Permits, Licenses and Fees                                                (P)       270
       Petty Cash Expenditure                                                    (P)       500
       Rent                                                                      (P)     8,200
       Travelling Expenses                                                       (P)     2,500
       Wages - Staff                                                             (P)    36,000
       Salaries - Management                                                     (P)    22,000
Expenses - Prior to Interest, Depreciation, Superannuation etc.                                       95,920
       (NC) - Non Cash Charge
       (C) - Creditors                                                                   5,610
       (P) - Prompt Payment                                                             90,310
                                                                                        95,920
Forecast Surplus - Prior to Interest etc.                                                             64,800
Less - Interest Bank Loans                                                    (NC)       8,140
                                                                                                       8,140
Less (Non Cash Charges) Depreciation
        Fixtures & Fittings                                           1,000
        Plant & Equipment                                             3,700
        Motor Vehicles                                                5,000
                                                                              (NC)       9,700
Hire Purchase Charges                                                         (NC)       1,894
                                                                                                      11,594
                                                                                                      45,066
Less Bank Overdraft Interest                                                     (P)     1,300         1,300
FORECAST NET PROFIT FOR 31/03/2004                                                                   $43,766




                                                                                        Ref 05.35 - Addendums
                                                                                                       Page 6
                                                                                                                                                ADDENDUM 5.35B
                                                     ACCOUNTING REPORTS AND TERMINOLOGY
                                                       BUDGETS & CASH FLOW FORECASTS

                                                                J BLOGGS LTD
                                                        TRADING AS “JIM BLOGGS & CO”
                                                                           st
                                                      FOR THE YEAR ENDED 31 MARCH 2004

                                  Apr       May        Jun       Jul       Aug       Sep       Oct       Nov       Dec       Jan       Feb       Mar       Total

(a)   Debtors’ Budget
      Opening Balance             42,108    40,000     40,000    40,000    42,000    51,000    65,000    57,000    43,000    39,000    36,000    35,000    42,108
      Sales 80% Credit            20,000    20,000     20,000    22,000    30,000    40,000    25,000    15,000    17,500    17,500    17,500    17,900   262,400
                                  62,108    60,000     60,000    62,000    72,000    91,000    90,000    72,000    60,500    56,500    53,500    52,900   304,508
      Less Cash Received          22,108    20,000     20,000    20,000    21,000    26,000    33,000    29,000    21,500    20,500    18,500    18,900   270,508

      Balance Carried Forward:   $40,000   $40,000    $40,000   $42,000   $51,000   $65,000   $57,000   $43,000   $39,000   $36,000   $35,000   $34,000   $34,000

(b)   Creditors’ Budget
      Opening Balance             16,330    17,000     17,000    17,000    22,000    27,000    24,000    18,000    12,000    14,000    13,000    12,000    16,330
      Purchases                   13,750    13,250     13,250    18,025    24,125    20,500    15,937     9,562    11,156    11,156    11,156    11,413   173,280
      Expenses                       467       467        467       467       467       467       467       467       467       467       467       473     5,610
                                  30,547    30,717     30,717    35,492    46,592    47,967    40,404    28,029    23,623    25,623    24,623    23,886   195,220
      Less Cash Paid              13,547    13,717     13,717    13,492    19,592    23,967    22,404    16,029     9,623    12,623    12,623    11,886   183,220

      Balance Carried Forward    $17,000   $17,000    $17,000   $22,000   $27,000   $24,000   $18,000   $12,000   $14,000   $13,000   $12,000   $12,000   $12,000




                                                                                                                                             Ref 05.35 - Addendums
                                                                                                                                                            Page 7
                                                                                                                                                            ADDENDUM 5.35B
                                                                 ACCOUNTING REPORTS AND TERMINOLOGY
                                                                   BUDGETS & CASH FLOW FORECASTS

                                                                            J BLOGGS LTD
                                                                    TRADING AS “JIM BLOGGS & CO”
                                                                                       st
                                                                  FOR THE YEAR ENDED 31 MARCH 2004

                                              Apr       May        Jun       Jul       Aug       Sep       Oct       Nov       Dec       Jan       Feb       Mar       Total

(c)   Stock (Inventory Budget)
      Opening Balance                         29,000    30,000     30,500    31,000    35,000    40,000    35,000    35,000    35,000    35,000    35,000    35,000    29,000
      Purchases                               13,750    13,250     13,250    18,025    24,125    20,500    15,937     9,562    11,156    11,156    11,156    11,413   173,280
                                              42,750    43,250     43,750    49,025    59,125    60,500    50,937    44,562    46,156    46,156    46,156    46,413   202,280
      Less Cost of Sales
      51% of Sales                            12,750    12,750     12,750    14,025    19,125    25,500    15,937     9,562    11,156    11,156    11,156    11,413   167,280
      Forecast Closing Balance               $30,000   $30,500    $31,000   $35,000   $40,000   $35,000   $35,000   $35,000   $35,000   $35,000   $35,000   $35,000   $35,000

(d)   Sales
      Sales - credit                          20,000    20,000     20,000    22,000    30,000    40,000    25,000    15,000    17,500    17,500    17,500    17,900   262,400
      Sales - cash                             5,000     5,000      5,000     5,500     7,500    10,000     6,250     3,720     4,375     4,375     4,375     4,475    65,600
      Forecast Closing Balance               $25,000   $25,000    $25,000   $27,500   $37,500   $50,000   $31,250   $18,750   $21,875   $21,875   $21,875   $22,375   $328,00
                                                                                                                                                                            0

(e)   Bank Loan
      Balance Brought Forward                 39,000    37,917     36,834    35,751    34,668    33,585    32,502    31,419    30,336    29,253    28,170    27,087
      Add Interest                               345       345        345       345       345       345       345       345       345       345       345       345     4,140
      Less Payments (Principal & Interest)     1,428     1,428      1,428     1,428     1,428     1,428     1,428     1,428     1,428     1,428     1,428     1,432    17,140
      Balance Carried Forward                $37,917   $36,834    $35,751   $34,668   $33,585   $32,502   $31,419   $30,336   $29,253   $28,170   $27,087   $26,000   $26,000




                                                                                                                                                         Ref 05.35 - Addendums
                                                                                                                                                                        Page 8
                                                                                                                                                                                  ADDENDUM 5.35C
                                                                         ACCOUNTING REPORTS AND TERMINOLOGY
                                                                          BUDGETS AND CASH FLOW FORECASTS
                                                                                    J BLOGGS LTD
                                                                             TRADING AS “JIM BLOGGS & CO”

                                                                                   CASH FLOW FORECAST
                                                                            FOR THE PERIOD ENDED 31st MARCH 2004

                                      REPRESENTING FORECAST CASHBOOK BALANCES (WITHOUT UNPRESENTED CHEQUES AND OUTSTANDING DEPOSITS)

                                              Apr         May         Jun         Jul         Aug         Sep         Oct         Nov         Dec         Jan         Feb          Mar         Total


Opening Balance O/D                           $20,214     $16,450     $16,138     $15,652     $13,441     $14,329     $14,906      $8,357      $1,432     ($3,492)    ($5,268)     ($4,724)     $20,214


Add Forecast Payments
Creditors                                      13,547      13,717      13,717      13,492      19,592      23,967      22,404      16,029       9,623      12,623      12,623       11,886      183,220
Prompt Payments                                 7,525       7,525       7,525       7,525       7,525       7,525       7,525       7,525       7,525       7,525       7,525        7,535       90,310
Loan Payment - Bank (Principal & Interest)      1,762       1,762       1,762       1,762       1,762       1,762       1,762       1,762       1,762       1,762       1,762        1,762       21,140
Hire Purchase Commitment                            510         510         510         510         510         510         510         510         510         510         510          510      6,120
Capital Expenditure                                                     1,000                                               500                                         1,000                     2,500
Taxation Payments                                                                                           2,813                               1,406           679                  1,102        6,000
Bank Interest on Overdraft                                  1,175                                                                                   125                                           1,300
Drawings                                                                                                                                                                             5,000        5,000
                                              $43,558     $41,138     $40,652     $38,941     $42,829     $50,906     $47,607     $34,182     $22,383     $19,607     $18,151      $23,071     $335,804
Less Forecast Cash Receipts
Cash Sales                                      5,000       5,000       5,000       5,500       7,500      10,000       6,250       3,750       4,375       4,375       4,375        4,475       65,600
Debtors’ Receipts                              22,108      20,000      20,000      20,000      21,000      26,000      33,000      29,000      21,500      20,500      18,500       18,900      270,508
TOTAL RECEIPTS                                $27,108     $25,000     $25,000     $25,500     $28,500     $36,000     $39,250     $32,750     $25,875     $24,875     $22,875      $23,375     $336,108


BALANCE CARRIED FORWARD (O/D)                 $16,450     $16,138     $15,652     $13,441     $14,329     $14,906      $8,357      $1,432     ($3,492)    ($5,268)    ($4,724)      ($304)       ($304)




                                                                                                                                                                            Ref 05.35 - Addendums
                                                                                                                                                                                           Page 9
                                                           ADDENDUM 5.35D

J BLOGGS LTD
PROJECTED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2004

                                             THIS YEAR         LAST YEAR
                                                 $                 $

SHAREHOLDERS’ EQUITY
Shareholders’ Equity                              43,786                   20
TOTAL SHAREHOLDERS’ EQUITY                       $43,786                  $20

Represented By:

CURRENT ASSETS
Building Society Account                              20                   20
Cash Register Floats                               1,000                1,000
Petty Cash Float                                     250                  250
Sundry Debtors                                    34,000               42,108
Stock on Hand                                     35,000               29,000
Cash at Bank                                         304                    -
                                                  70,574               72,378
LESS
CURRENT LIABILITIES
Bank Overdraft                                         -               20,214
Sundry Creditors                                  12,000               16,330
Shareholders’ Current Accounts                    48,292               59,292
                                                  60,292               95,836

PROJECTED NET CURRENT ASSETS/(LIABILITIES)       $10,282            ($23,458)

PLUS
PROJECTED NON CURRENT ASSETS

FIXED ASSETS
At Cost Less Accumulated Depreciation
Fixtures & Fittings                               11,673               12,673
Plant & Equipment                                 22,897               24,049
Motor Vehicle                                     14,375               19,375
                                                  48,945               56,097
INTANGIBLE ASSETS
Goodwill                                          19,000               19,000

TOTAL NON CURRENT ASSETS                          78,227               51,639

LESS
NON CURRENT LIABILITIES
Bank Loan                                        26,000               39,000
Hire Purchase                                    12,240               18,360
Less Accrued Interest                            (3,799)              (5,701)
                                                 34,441               51,659

NET ASSETS                                       $43,786                  $20




                                                           Ref 05.35 - Addendums
                                                                         Page 10
                                                                   ADDENDUM 5.35E


                                      J BLOGGS LTD
                                         trading as
                                   “JIM BLOGGS & CO”

                        PROJECTED STATEMENT OF CASH FLOW
                         FOR THE YEAR ENDED 31st MARCH 2004



IT IS PROJECTED THAT FUNDS WILL BE PROVIDED FROM:

Net Profit from business activities                       43,706
Add Non-Cash Charges:
       Depreciation - Fixtures & Fittings         1,000
       Depreciation - Plant and Equipment         3,700
       Depreciation - Motor Vehicles              5,000
       Hire Purchase Charges                      1,894   11,594
Reduction in amount owing by Sundry Debtors                8,108
                                                                   $63,468


IT IS PROJECTED THAT FUNDS WILL BE APPLIED TO:

Increase in investment in Stock on Hand                    6,000
Reduction in Bank Overdraft                               20,518
Reduction in amount owing to Creditors                     4,330
Additional Plant and Equipment                             2,500
Bank Loan Repayments                                      13,000
Hire Purchase commitment repayments                        6,120
Taxation Payments - Mr & Mrs Bloggs                        6,000
Drawings - Mr & Mrs Bloggs                                 5,000
                                                                   $63,468




                                                                    Ref 05.35 - Addendums
                                                                                  Page 11
DISCLAIMER
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                                                                                            Ref 05.35
                                                                                            Page 12

				
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