Transcript What freelancers need to know about budgets presentation.ppt

Surviving the first year:
What freelancers need to know about budgets.
Contact Info:
Angel Rodriguez
215-427-9245 ext. 405
[email protected]
www.empowerment-group.org
Objectives
1. Explain what a Budget and a Cash Flow forecast are.
2. What is the difference between a Budget and a Cash
Flow forecast.
3. Review your baseline information, forms needed in the
first year.
4. The relationship between Cash Flow Forecasting and
Strategic Marketing.
5. Introduce financial terms and Break-even analysis
Budgets &
Cash Flow Forecasting
What is a Budget?
1. Budgets are financial statements setting out the
planned future performance of a freelancer’s
activities.
2. A budget allows a freelancer to plan ahead and
then to check on their performance against their
projected budgeted figures.
What is a Variance?
1. The difference between budgeted figures/
performance and actual figures/ performance is
termed a variance.
2. Variance is an important management tool because
it allows freelancers to manage their activities - i.e.
to make informed decisions based on real
information (i.e. how actual performance compares
with budgeted performance). A positive variance is
one where actual business performance proves to
be better than what was budgeted for.
Financial Preparations: Budget Chart
Annual Household Income
Monthly Income
(Annual Income ÷ 12 months)
Monthly Expenses
(estimate how much you spend
per month)
Food
Housing
Transportation
Healthcare
Entertainment
Personal Items
Education
Other:
Other:
Other:
Credit Card payment (estimated)
Student loans (estimated)
Other debt (estimated)
Total Monthly Expenses
(add all expenses)
Financial Preparations: Start-up Cost Chart
Item Needed to Start Business
Equipment
Advertising
Computer
Internet Access
Rent
Moving Costs
Subscriptions
Office Outfit
Total Start-up Costs
Cost of Item
Financial Preparations: On Going Cost Chart
On-Going Costs (Monthly Expenses)
Equipment Lease
Advertising
Utilities
Internet Access
Rent
Transportation
Subscriptions
Total On-Going Costs (Monthly)
Cost of Items
What is a Cash Flow Forecast?
1. A cash flow forecast - is a forecast of cash coming
into and going out of a business based on previous
experience e.g. last month, or last year.
2. A cash flow budget, is a plan usually to generate
more cash coming into a business than going out.
What is a Cash Flow Forecast?
1. In order to prepare a cash budget a freelancer
needs to know what receipts and payments are
likely to take place in the future and the dates when
they will happen.
2. It is important find the length of lead time between
incurring an expense and paying for it as well as the
time lag between making a sale and collecting from
clients.
Cash Flow Forecast
Jan
Bal
Fwd
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
+$1,250
+$1,250
+$1,250
+$500
-$500
-$1,500
-$2,250
-$3,250
-$2,750
-$3,000
-$3,500
$2,000
$2,000
$2,000
$2,000
$2,000
$2,000
$2,000
$2,000
$2,000
Ovhd
$2,000
$2,000
$2,000
C1
$500
$500
$500
C2
$250
$1,000
$1,500
$24,000
$1,500
$250
C3
Total
$250
$1,000
$1,000
$1,000
$250
$1,000
$1,500
$1,000
$1,000
$1,500
$6,000
C4
$1,500
$1,500
$1,500
$9,000
C5
$1,000
Ttl
Ernd
$3,250
$3,250
$3,250
$2,500
$1,500
$1,000
$1,250
$1,000
$2,500
$1,750
$1,500
$0
$18,500
Bal
+$1,250
+$1,250
+$1,250
+$500
-$500
-$1,500
-$2,250
-$3,250
-$2,750
-$3,000
-$3,500
-$5,500
$5,500
$1,000
Financial Terms
Financial Terms
1. Overhead Costs: costs that are incurred no matter
whether any activity is carried out.
2. Fixed Costs: costs that do not change month to month.
3. Variable Costs: costs that do change month to month.
4. Income: the money that comes into your business.
5. Expenses: the money that you spend on items to
operate or improve your business.
6. Break Even Point: the amount it takes to meet all your
expenses while having additional income.
EMPOWERMENT GROUP
WWW.EMPOWERMENT-GROUP.ORG
14
The relationship between
Cash Flow and Strategic Marketing
Cash Flow
Jan
Bal
Fwd
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
+$1,250
+$1,250
+$1,250
+$500
-$500
-$1,500
-$2,250
-$3,250
-$2,750
-$3,000
-$3,500
$2,000
$2,000
$2,000
$2,000
$2,000
$2,000
$2,000
$2,000
$2,000
Ovhd
$2,000
$2,000
$2,000
C1
$500
$500
$500
C2
$250
$1,000
$1,500
$24,000
$1,500
$250
C3
Total
$250
$1,000
$1,000
$1,000
$250
$1,000
$1,500
$1,000
$1,000
$1,500
$6,000
C4
$1,500
$1,500
$1,500
$9,000
C5
$1,000
Ttl
Ernd
$3,250
$3,250
$3,250
$2,500
$1,500
$1,000
$1,250
$1,000
$2,500
$1,750
$1,500
$0
$18,500
Bal
+$1,250
+$1,250
+$1,250
+$500
-$500
-$1,500
-$2,250
-$3,250
-$2,750
-$3,000
-$3,500
-$5,500
$5,500
$1,000
Target Market Revisited
It Takes Time To Sell a Product or Service:
As a general rule you should use a ratio of 10:1 to calculate the amount of time it will
take you to close a contract or make a sale.
So for every one Contract you close assume it will take ten 1 hour meetings to get
to that point.
For this example assume your monthly overhead is $2,000.
Goal: $5,000
Client 1
Client 2
Average Contract Size
$50
$2,500
Number of Clients
100
2
1000
20
Average Work Day
8
8
Total Days Needed
125
2.5
4
0
$8,000
0
Total Number of Contact Hrs
Months
Overhead Used:
Strategic Planning
Strategic Planning Schematic
Where do you want to be?
By when?
What is your GOAL?
Where are you now?
Everything
above the red
line, like
planning,
does not
need a dollar
value.
What will you
do to
accomplish
your strategy?
What steps and
actions must
you take?
How will you get to where you want to be?
What is your STRATEGY or PROCESS?
What will you
do to
accomplish
your strategy?
What steps and
actions must
you take?
What will you
do to
accomplish
your strategy?
What steps and
actions must
you take?
All tasks
below the red
line, require
decisions and
a dollar value.
What will you
do to
accomplish
your strategy?
What steps and
actions must
you take?
Strategic Planning Template – Example #1
Starting
A Business
Strategic
Planning
Example 1
GOAL / OBJECTIVE
Where are you now?
Where do you want to be? And by
when?
Have an idea for a
business
Launch an on-line business
within six months
What strategic imperative
must be accomplished?
Build a compelling web site
What tactics will allow you
File all
necessary
paperwork
Learn how to
communicate
effectively
to accomplish your strategy?
Hire the right
person to build
the web site
Create shopping
cart for web site
Understand how
you will fill
orders people
make
Already Have a Business
Strategic Planning Example 2
GOAL / OBJECTIVE
Where do you want to be? And by
when?
Where are you now?
Increase Sales by 3%-5%
each month for the next
12 months
Sales For Past Six Months
Stagnant
What strategic imperative
must be accomplished?
Create and then implement a
detailed marketing plan
What tactics will allow you
Get customer
feedback
immediately
Analyze what
competitors are
offering
to accomplish your strategy?
Identify or
revisit your
value
proposition
Start a
relationship
marketing
program
Provide rewards
program for
best customers
Breakeven Analysis
Break Even Analysis
The Break Even Calculator
Ian's T-shirt Co.
Initial Projections 6mos.
Price Per Unit:
$
7.99
2,100
Expected Unit Sales:
Total Revenue:=PPU*EUS
$16,779.00
Cost Per Unit:
$
Variable Unit Cost:=EUS*CPU
$13,881.00
Fixed Cost:
$ 4,150.00
Profit: =Ttl Rev-FC-VUC
$ (1,252.00)
6.61
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Break Even Analysis
Change Price Per Unit
Original
Price Per Unit:
$
7.99
Change
$
Variation
8.59
$
0.60
2,100
2,100
Total Revenue:
$16, 779. 00
$ 18,031.00
$
1,252.00
Cost Per Unit:
$
$
6.61
$
-
Variable Unit Cost:
$13, 881. 00
$ 13,881.00
$
-
Fixed Cost:
$
4,150.00
$
4,150.00
$
-
Profit:
$ (1,252.00)
$
-
$
1,252.00
Expected Unit Sales:
6.61
0
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Break Even Analysis
Change Unit Sales
Original
Price Per Unit:
$
7.99
Change
$
Variation
7.99
$
-
2,100
3,007
Total Revenue:
$16,779.00
$ 24,027.90
$
7,248.90
Cost Per Unit:
$
$
6.61
$
-
Variable Unit Cost:
$13,881.00
$ 19,877.90
$
5,996.90
Fixed Cost:
$
4,150.00
$
4,150.00
$
-
Profit:
$ (1,252.00)
$
-
$
1,252.00
Expected Unit Sales:
6.61
907
25
Break Even Analysis
Change Cost Per Unit
Original
Price Per Unit:
$
Change
7.99
2,100
Expected Unit Sales:
Total Revenue:
$16,779.00
Cost Per Unit:
$
Variable Unit Cost:
$13,881.00
Fixed Cost:
$ 4,150.00
Profit:
$ (1,252.00)
$7.99
$0.00
2,100
0
$ 16,779.00
6.61
$6.01
$ 12,629.00
$4,150.00
$
Variation
-
$
$
(0.60)
$ (1,252.00)
$
-
$ 1,252.00
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Break Even Analysis
Change Fixed Cost
Original
Price Per Unit:
$
Expected Unit Sales:
Total Revenue:
Change
7.99
Variation
$7.99
$0.00
2,100
2,100
0
$16,779.00
$ 16,779.00
$0.00
$6.61
$0.00
Cost Per Unit:
$
6.61
Variable Unit Cost:
$13,881.00
Fixed Cost:
$ 4,150.00
Profit:
$ (1,252.00)
$ 13,881.00
$2,898.00
$
-
$0.00
$ (1,252.00)
$1,252.00
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