Financial Planning for a Startup (Income and Expense accounting)

Learn how to create the financial plan for a startup business plan. Enter your investments, expenses and revenue forecasts and see the evolution of sales, earnings and liquidity. No special accounting knowledge is required, because it uses income and expense accounting.

Luke's coffeehouse

Basic Currency: EUR

Income & Expense accounting

Accounts
Group Account Description Gr
    ESTATE  
       
  CASH Cash on hand 1
  BANK Bank account 1
  CUSTOMERS Customers account 1
  FURNITURE Furniture 1
  INVENTORY Inventory 1
  SUPPLIERS Suppliers 1
  LOAN Loan 1
  EQUITY Owner equity 1
       
1   Total Estate  
       
       
Categories
Group Category Description Gr
    OPERATING RESULT  
       
    INCOME  
  SALES Income from sales 4
  INTINC Interest income 4
4   TOTAL INCOME 00
       
    EXPENSES  
  PERSON Personnel expenses 3
  GOODS Cost of goods 3
  RENTAL Rental and related expenses 3
  ADMIN Administrative costs 3
  INTEXP Interest expense 3
  DEPREC Depreciation 3
3   TOTAL EXPENSES 00
       
00   TOTAL OPERATING RESULT  
       
       
       

Financial and liquidity planning for Luke's Coffeehouse

This section will explain how to set up a financial plan for a new entrepreneurial activity, according to the income and expense accounting model.

Consult the Benefits and Features of Financial Planning section for further information.

Luke plans to open a Coffeehouse in 2022 and is preparing a Financial Plan, including all the necessary details.

  • The financing of his project includes his proper means and a loan from a third person.
  • In January 2022 he rents the premises, redecorates and furnishes them and starts his commercial activity.
  • The Financial Planning is established for the period running from January 2022 through to December 2025.

By entering the detail of the various expenses and income, Luke will be able to generate and print financial statements (cash and other) showing his expenses and revenues, as well as the financial performance for the year, by quarter or any other subdivision of period of his choosing.

The evolution of his bank account balance, in particular, will allow him to track wether the available liquidity will be sufficient for his activity.

Example File

 

Download the template file and open it with Banana 8 Accounting Software (for further information consult the following template link).

Enter your expected Income and Expense estimates into the Budget table and the financial plan and liquidity projections will immediately be available.

File properties

In the File and accounting properties menu, enter your general data.

Opening date is 1st of January 2017 and closing date December 31st 2017.

This is also the period of calculation that will be used for the Total in your Budget column.

The Chart of Accounts

The following example will explain the functioning of the Budget table.

  • The Chart of Accounts is is simplified to it's essence.
  • Comprehensive name for accounts are used to illustrate the use of Banana Accounting 8 software.
  • Opening. The activity starts from scratch, so there are no opening balances.
  • Budget. This is the overall budget at the end of the accounting period.
    As you see, this represents the balance sheet and income statement at the end of the budgeting period.

If your activity is less complex, you may alter your Chart of Accounts accordingly.

If you require a more structured Chart of Accounts, it is recommended to set off with one of Banana Accounting 8 software's Chart of Accounts templates and then add the Budget table.

The Accounts table

Enter your Balance Sheet data (Assets and Liabilities) here.

The Categories table

Enter your Operating data (Expenses and Income) here.

The Budget table

The Budget table (check explanations about the use of columns), is where data relative to your Financial Planning are entered.

Financial Planning is set up by entering forecasts such as income and expenses in the Budget table. The budget table offers some additional columns that make Financial Planning easier, such as:

  • Repeat.
    Entering “M” = Monthly will return your operation for each following month.
    If left blank, the operation will only take place once.
  • End (Data).
    Used in conjunction with Repeat, this will determine the last date when the operation will be repeated. 
  • Total.
    The total amount recorded in the current year.

Transactions for January

Those are identical to entering in the transactions table, because there is no Repeat yet.

This is the first month of running the Coffeehouse and there are the registration of the owner's equity, the payment of the furniture and the accession to a loan.

The entering in the below screenshot, such as first month's rent, were included as non-repetitive recordings, to illustrate some simple recordings that contain no Repeat.

Repetitive transactions for February

Operations that are occurring on a monthly basis are entered in February.

  • The rent from January to June is of 1'000 per month and increases to 1'200 as per July.
    • Doc 5:
      The first rent was paid cash. There will probably also be the downpayment of a guarantee.
    • Doc. 50: 
      The rent of 1'000 is budgeted from February to June.
      • On February 2 the rent is paid from the BANK account.
        In the following months the payment of the rent will figure on to 2nd day of each month.
      • The End date is the 30th of June.
        The last rent of 1'000 will be on the 2nd of June.
      • Repeat. M = monthly.
      • Total 5,000 (5 x 1'000), automatically calculated, is the total amount for the transaction during this period.
    • Doc 51:
      Rent is budgeted from July onwards.
      • Date 2nd of July.
        In the following months the payment of the rent of 1'200 will figure on to 2nd day of each month.
      • End
        As no date is indicated, this expense will be repeated for all the following months and years.
      • Repeat. M = monthly.
      • Total 7'200 (6 x 1'200) is automatically calculated.
        Represents six months' rent from July to December.
  • Doc. 52.
    The leasing of the Cash Register.
    • Date is 10th of February.
    • End (of lease) January 31st 2019. When the last installment on the lease is due.
    • Repeat. M = monthly.
      The operation will be repeated each month, the last time in January 2019.
    • Account the BANK.
    • Category Administrative expenses.
    • Amount 200.00 monthly lease rate.
    • Total  2'200 (200 x 11 months).
  • Doc. 53.
    Payment towards the lease redemption.
    This operation only takes place in 2019, but is included here, because it is linked to the monthly lease.
    • Date is 10th February 2019.
    • Account the BANK.
    • Category Administrative expenses.
    • Amount 400.00 the release amount.
    • Total empty because there is no expenditure in the current year.
  • Doc. 54: 

    Monthly salaries.

    • Date: 25th of February.
    • Repeat. M = monthly.
      The operation will be repeated on the 25th of each month to come.
    • Total 55'000 (5 x 11 months).
  • Doc. 55.
    Administrative expenses (this is an approximation: for a correct budgeting, entering for each separate expense will be necessary).
    • Date 28th of February.
    • Repeat is ME = Month End.
      The operation will be repeated every month on the last day of the month.
      In March it will be on 31st, April 30nd and so on.
    • Amount 300.00
    • Total  3'300 (300 x 11 months)

Budgeting for income and purchase of goods

Income and goods purchases are itemized below as monthly amounts, taking into account that there might be important monthly fluctuations.

It might prove more appropriate to use separate turnover figures for drinks or/and food.

February's Repeat column is empty, as we expect a higher figure for he next year and this will be added at a later stage.

From March onwards, the turnover is considered to be representative for the years to come.

Calculations for Income and Expense will be calculated on a monthly basis by Banana 8 Accounting Software.

  • Doc 101

    Income indications for February

    • Date 20th of February.
      Income occurs on every day of a month. We choose a date towards mid-month as an approximated level of liquidity.
    • Repeat no repetition.
      A higher figure is expected next year and will be recorded in the successive year.
    • Account Cash register receipts that are deposited in BANK.
    • Category Provenance of SALES deposited.
    • Amount 10'000.00.
    • Total The next operation falls within next year, hence, the total represents one single amount.
       
  • Doc 102

    Indication of forecasted costs for goods, on a pro rata 20% monthly basis.

    • Date 21st of February . The day after entering the sales transactions.
    • Repeat no repetition.
      The operation will be repeated on the 21st of each following month.
      Therefore, cost of goods will be calculated each month as a percentage of purchases of sales account transactions.
    • Account Payments are settled via BANK.
    • Category Purchase of GOODS.
  • Doc 103
    Two lines, which are similar to Doc 101 and 102, but for March.
    • Repeat Y= yearly. Turnover and costs for the month of March for subsequent years.
  • Doc 104 through to Doc 112
    Each 20th of the month projected sales for the different months of the year are indicated.

Following Years' Proceeds

Transactions can also be indicated for the following years.

These data will be used to establish budgets for the years to come.

The Total column will remain empty, as these values are ​​out of scope and only refer to the current accounting period.

  • Doc 151

    Transaction entering similar to the previous year

    • Date 20th of January
    • Repeat Y = yearly
      This will be repeated in the subsequent years.
    • Total empty (calculated automatically).
    • The Total column remains empty, as these values are ​​out of scope for current accounting period, and will not be indicated in the Total column which refers to the current period.

End of quarter

Indications of some typical entries that are repeated at the end of quarter.

  • Doc 70
    Indications of some typical entries that are repeated at the end of quarter.
    • Dat 31st of March.
    • Repeat 3ME 3 Months End.
    • Category ADMIN. Administrative costs, this would normally be financial bank charges.
    • Amount 150 (Automatically calculated) by multiplying the quantity by the unit price.
    • Total 600 (Automatically calculated) 150 quarterly until the end of the year.
  • Doc 71
    Interest on the loan that must be paid quarterly.
    • Date 31st of March
    • Repeat 3ME 3 Months End.
    • Account LOAN interest is added to the loan.
    • Category INTEXP interest on loan.
    • Amount interest for current quarter.
    • Total interest for the current year.
  • Doc 72
    Interest accrued on the LOAN is payed from the Bank count.
    • Date 31st of March.
    • Repeat 3ME 3 Months End.
    • Account LOAN interest owned on liabilities.
    • Category BANK account used for payment.
    • Formula "interest“ content of variable interest (value saved in the operation Doc 71).
    • Amount the result of the formula, i.e. the interest for this quarter.
    • Total interest for the current year,
      .
  • Doc 73
    Interest earned on current account with the Bank.
    • Date 31st of March.
    • Repeat 3ME 3 Months End.
    • Account BANK where interest is received.
    • Category INTINC interest income.
    • Amount is interest income for this quarter.
    • Total interest for the current year,

Year End

Some typical operations might take place at year end. Here, we use Repeat "Y" in order for them to be carried out for subsequent years.

  • Doc 200
    Attribution to staff of a 1% commission on annual sales at the end of the year.
    • Date 31st of december.
    • Repeat Y= calculation is repeated each year.
    • Account BANK
    • Category PERSON Personnel expenses.
    • Amount is the commission payed to the sales staff.
    • Total identical to Amount.
       
  • Doc 201
    Reimbursement of 10% of the outstanding loan.
    • Date 31st of december.
    • Repeat Y= calculation is repeated each year.
    • Account LOAN account (reimbursement of your loan).
    • Category BANK Bank account used for reimbursement.
    • Amount 6'000 is the equivalent of 10% of your total Loan.
    • Total identical to Amount.
  • Doc 202

    Used for depreciation for your furniture.

  • Doc 203
    Assessment of your Inventory value.
    This is non-repetitive because the assessment will be based on asset values of your inventory at each year end.

Compositions

Use the create new compositions command to generate new compositions for the printout including print parameters already preset in Budget and enhanced for groups.

You can preset the prints configuration according to your requirements.

If you understand how compositions functions, you will be able use it with other commands and create prints or other adapted to your own purpose.

 

Reports in the Accounts table

In the Accounts tab, view Budget to access the updated budget amounts.

Financial and liquidity planning for the first year

Use Command

  • Conta1-> Quarterly forecast 1. evolution during the first year can be seen.

The composition that has been set up can be visualized as

  • Breakdown by Period -> Quarter
     

These two prints will allow you to apprehend:

  • The economic forecast (expenses and income) and budgeting of the current financial year.
  • The detailed evolution of liquidity in your bank's current account.

Modifying or Creating a new composition will give you a breakdown by month.

As per month

Financial and liquidity planning for a four year period

Use Command

  • Conta1-> Forecast 4 years

This will display the predefined composition for:

  • Period from 01/01/2017 to 31/12/2020
    In this report, you can specify a period that differs from the accounting period.
    The program will then project the data for the specified period.
  • Subdivision per year.

Account Card

After opening the Budget table, click on the BANK cell and all budgeted transactions contained in the account card will be displayed.

 

 

 

 

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