Grow through the stages by headcount 7 of 23 in this group
SOP 151
Budget and forecast
What this page is for. Use it when the business has reached the stage of 10 to 19 people, the stage whose theme is productize, and there is not much money you can put back into growth. It carries the finance step for that stage: a budget that saves for the big costs coming, a simple forecast, and a running record of tax write-offs. The earlier stages built smaller versions of the money side, from the first business bank account to the first statements (SOP 150 — Set up the finances stage by stage); this is a bigger version.
SOP-151-Budget-and-forecast.md
1. The constraint and what graduates it
| Item | At this stage |
|---|---|
| The constraint | You do not have much money you can reinvest into growth |
| To graduate | Make a budget so you can save for big expenses; create simple financial forecasting; begin keeping track of tax write-offs |
2. List the big costs that are coming
Start with the big expenses and investments ahead of you. The kinds given, each with its example:
| Kind | Example given |
|---|---|
| Events | A big promotion you run twice a year |
| Inventory | Stock you will buy ahead: you pre-order a little more than normal to get some economies of scale and a lower average cost, but it costs more cash today |
| Equipment | Equipment you might need: if you get to 20 lawns a day, you need another lawn mower |
| A new location | Opening one, if the business is brick and mortar |
The equipment example also names a threshold for a machine. Its figure is not established on this page.
3. Tell an investment from an expense
Each of those is an expense, an investment, or both. Investments increase the output of the business. Expenses typically just let you keep running the business as it is.
4. Cost each one, date it, and set the monthly saving
- Work out how much each one will cost and when you will need the money.
- With that forecast in hand (it will probably happen on these dates, and it will cost this much), work out how much you need to save each month so that cash flow stays smooth.
5. Forecast from the run rate
Work out how much you will have at your current run rate, 6 to 12 months out. The forecast is a simple question: if this continues, at this growth rate or even this plateau, what can you expect to happen, and what can you plan for? It lets you make a guess, based on how much cash flow you are going to have.
6. Keep track of write-offs
As expenses and investments grow, you can write off more and more from a tax point of view; this is called one of the benefits of owning a business. Keep track of the expenses and write-offs, so that at the end of the year you maybe do not get hit with as big a tax bill.
Tax law is not covered on this page; the write-off statement is carried as it was made.
7. The bottom line for finance at this stage
That is pretty much all of it; there is not a huge amount here. The problem is that you do not know how much money you can reinvest in growth, and you need to. So you make a budget, save for the big expenses, put a forecast in place, and keep track of expenses and write-offs.
8. What this page does not decide for you
- The machine threshold in the equipment example. Not established on this page.
- How to build the forecast beyond the run rate. Not established on this page.
9. What this page does not cover
Product, marketing, sales and the other functions at this stage are on SOP 152 — Sell a second product at ten to nineteen people.