Budgets

Budgets
Non-financial people get very worried when the Bank Manager demands a Financial Budget before advancing any money to the fledging company. A budget is simply adding up the income from all sources of a company and balancing that against the expenditure. A typical budget for a marketing company would look like this:

Income

Profit on sales	400,000
Commission	50,000
Consulting	5,000
Misc	3,000
Total	458,000

Expenses

Accounting	3,000
ACC Levy	2,500
Advertising/Promotion	7,500
Bad Debts	5,000
Bank Charges	1,000
Computer Expenses	2,000
Depreciation	5,000
Entertainment	8,000
Equipment Lease	1,500
Freight & Courier	2,500
Fringe Benefit Tax	9,000
General Expenses	5,000
Insurance	4,500
Interest	3,000
Legal	1,000
Office Expenses	2,500
Postage	2,500
Printing & Stationery	3,500
Repairs & Maint.	2,000
Salaries & Wages	220,000
Staff Expenses	4,000
Subscriptions	5,000
Telephone & Tolls	7,500
Travel Local	32,000
Travel Overseas	16,000
Vehicle Running	9,000
Vehicle Lease	24,000
Total	388,000
Pre tax Profit	70,000

It is vital to prepare detailed budgets to see the impact of changes to income or expenditure. If the budget shows expenditure is greater than income, then it will be necessary to increase sales or to reduce costs.
When preparing a budget, it pays to have a good understanding of the difference between fixed and variable costs. Fixed costs are constant in that they do not vary as the volume of sales change. Examples are rent and salaries. Variable costs are things like labour, materials, promotion/advertising costs that vary in accordance with the volume of sales.


The budget should be reviewed at regular intervals say monthly or quarterly, so that early action can be taken if adverse trends show up.