The financial budget is the study by which the different costs and the amount for the initiation of any business project are identified
The financial budget refers to the economic and financial resources necessary to develop or carry out the activities or processes and / or to obtain the essential means that must be calculated, such as the cost of realization, the cost of time and the cost of acquiring new resources. Feasibility is commonly the most important part, since with it other shortcomings of other resources are solved. The above is the hardest to achieve and additional actions are needed when they are not available.
It includes the analysis of the investment, the projection of income and expenses and the form of financing. In this work, people who want to start a business must bear in mind that this will be their greatest source of information.
Funding sources
Financial resources are the scarcest in business activity, which is why the right decisions must be made when evaluating possible sources of financing for the activity.
Profit Margin: Profit Margin is the profit obtained in a commercial type operation.
There are two types of sources to evaluate:
Internal sources
They are all those that are more at the hand of the businessman and are generally the cheapest when evaluating their financial cost.
External sources
These generally require meeting the requirements of more layers of collateral or joint firm and when evaluating their cost is higher.
Below are the basic steps necessary to budget for a business start-up
Investments
Investment Costs of Tangible Goods
They refer to those costs incurred in the purchase of fixed assets, such as facilities, machinery, equipment, land, furniture and office equipment, installation and assembly. You must indicate, for each of the fixed assets that are depreciated, the extent of their depreciation.
Investment Costs of Intangible Assets
Refers to costs related to start-up, organization costs, patents and the like, interest during construction, engineering costs and installation administration, brands, commercial designs, economic study, final studies, training, packaging development, studies and plans for productivity and quality, development of human resources, unforeseen events and others related to the project.
Current Assets or Working Capital
They refer to the costs of materials in inputs, labor, transportation, rentals, payment of services, packaging, promotion, inventory of raw materials, inventory of products in process, inventory of finished products and in transit, credits or accounts for charge customers, inventory of spare parts and tools.
All of the above is necessary to budget for the execution and operation of the production process.
The minimum amount of money available to cover: payment of wages, salaries, services, administration and maintenance expenses, during a given period must be determined. This amount is known as working capital.
Once the capital needs and their purpose are clear, the entrepreneur must define what he will finance with his own capital and the financing needs that he will have to operate optimally. Likewise, it will define the places where you can acquire the loan and the payment conditions.
Calculation of costs and expenses
Expense budget
Expenses should be divided into the following headings: prime cost, manufacturing expenses, administration and sales expenses and financial expenses.
Prime cost
It is the cost of those inputs that are directly incorporated into the finished product, such as raw materials, other direct materials, direct labor.
Manufacturing expenses
This includes indirect labor, services such as electricity, telephone, water, fuel, spare parts, maintenance, depreciation of facilities, machinery and equipment, amortization of deferred assets, direct (property) and indirect taxes (such as sales that are pays for supplies) and other manufacturing expenses.
Selling and administrative expenses
The salaries of the Administration and Sales personnel are part of this item, which refer to salaries, wages and social benefits. A monthly estimate is also included for telephones, telephones, faxes, mail, the depreciation charged here is only on the facilities and equipment used for the sale of the products. Administrative and selling expenses include expenses such as insurance, office expenses, general expenses, travel expenses, commissions on sales, promotion and advertising.
Financial expenses
They are the interests to be paid for the planned loans, according to the terms granted and the interest rates in force at the time of the project formulation. For the purposes of the calculation, care must be taken to charge or defer the payment of interest caused during the grace years, which depends on the characteristics of the financing.
The important thing in the sale process is not that the Margin is high or low by itself, but that it does not prevent the possibility of the product or service being sold.
Setting the sale prices
Setting the sale price of the sale price. For this step it is necessary to have a pricing strategy defined taking into account:
- According to the prices of the competition in the market According to the type of customer you want to reach According to the version of the product or the novelty According to the specialization of the product According to the location of the company or business According to the volume of purchase of the client According to the time the product is being sold the cost of the product plus a contribution margin or gross profit to cover expenses.
Calculation of profit margins in distribution
A Profit Margin is the profit obtained in a commercial operation, when a company or person carries out a commercial exchange of a tangible good or service and charges it to its buyer.
Making sales, that is, moving merchandise or providing a service, does not have much meaning in the business world if a specific profit is not obtained.
To calculate profit margins there are several formulas, techniques or ways, which, although it is true that they provide enormous utility to entrepreneurs, because they order the operations to be carried out and facilitate calculations, they do not, however, constitute the core part of transactions.
In the end, what matters is that the product or service is sold, regardless of the figure or percentage established as unit margin.
That is why it should be remembered that the final test for any decision on prices, and therefore margins, is represented by the customer market and that whatever the indications of the formulas or techniques used for the calculations, the decision will be always erroneous if the buyers or decision makers of the purchase of the articles or services are not willing to pay the amounts that are claimed for them.
Origin of Profit Margin
In simple terms, the Profit Margin for a company or person represents the difference between the monetary value that it incurs when manufacturing or acquiring a product or service and that which it receives when it sells it to a third party.
In the distribution of goods, the Margin is given by the difference between the Cost and the Sale Price of the product that is being distributed.
In general, the seller or offeror will always be interested in achieving the highest possible margin when selling their product. This can be achieved either by buying at the lowest possible value or by selling at the highest possible value, or even better, achieving both at the same time.
In practice, the profit margin in distribution operations is called Gross Contribution Margin, because from that amount there is still a need to deduct some operating expenses and cover the taxes generated by commercial activities, ultimately obtaining a profit called Profit Margin. Net. All sales operations and calculations are made on the basis that the profit claimed by the company is gross and therefore subject to the aforementioned deductions.
Determining factors in the Margins
In reality, not all products will have the same type of margin in the company, either in quantity or in percentage. This will depend on factors such as:
- Competitiveness of the sector Product quality Newness of the good Segment to which it is directed Intended objectives Degree of product differentiation
They are goods that the merchant must have in stock because they generate customer traffic for his business, but in reality they are perhaps not the most attractive for him because to earn something you have to sell many units.
The important thing in the sale process is not that the Margin is high or low by itself, but that it does not prevent the possibility of the product or service being sold.
If the Margin is too high and causes the Selling Price to rise and not be attractive, the product will not sell properly and therefore the Margin is the inappropriate factor. On the contrary, if the Selling Price is attractive, that is to say low, no matter what Margin it has, the product will be sold, and therefore the Margin is adequate.
