Financial Budget

Financial Budget
• Cash Budget
• Capital Budget
• Pro forma cash flow – Direct Method
• Pro forma Profit and Lost
• Pro forma Balance sheet
Cash Budget
• The Cash Budget tracks a business’s anticipated cash receipts and
disbursements.
• This is a very detailed and important schedule that draws on
information in the Operating Budget.
Capital budget
• A business’s Capital Budget forecasts large expenditures for items
such as machinery. Different companies set different thresholds for
what qualifies as a capital expenditure (versus an expense). If the
purchase of an item (such as a piece of machinery) is classified as a
capital expenditure, it is then depreciated (or amortized in some
cases) over a predetermined period of time. The Capital Budget
covers Capital Expenditures, Disbursements for Capital Expenditures,
and Depreciation Budgets.
Pro forma cash flow – Direct Method
• Pro forma cash flow is the estimated amount of cash inflows and outflows expected in one or
more future periods. This information may be developed as part of the annual budgeting or
forecasting process, or it may be created as part of a specific request for cash flow
information, as may be required by a prospective lender or investor.
• Pro forma cash flow information is useful for estimating when there may be cash shortages in
the near future, so that management can prepare by obtaining additional debt or equity
funding to offset the projected shortfall. Another alternative is to plan for expenditure
reductions in order to avoid future cash usage. If excess cash is projected by the pro forma
document, this information can also be used to plan the most appropriate
investment strategy for the cash.
• Pro forma cash flow is arguably the most essential of the various pro forma documents, which
can also include the income statement and balance sheet, since the other documents are
rendered invalid if an inadequate amount of cash is projected to be available to support
management's plans.
Pro forma cash flow – Direct Method
• A pro forma cash flow is constructing using several methods, each
covering a different period of time. The methods pertaining to the
forecasting periods are:
• Short term. Expected cash receipts from outstanding invoices and cash
payments for existing accounts payable are used to derive cash flows for the
next few weeks. This forecast should be very accurate.
• Medium term. Revenues that have not yet been billed are estimated from the
order backlog and translated into cash receipts for the next few months. The
expenses required to support the revenue noted in the order backlog are
translated into cash payments for the same period of time.
• Long term. Budgeted revenues and expenses are translated into cash receipts
and payments, respectively. This information may not be very accurate at all.
Pro forma (Projection) Income
Statement
• Pro forma income statement is the statement prepared by the
business entity to prepare the projections of income and expenses
which they expect to have in the future by following certain
assumptions such as competition level in the market, size of the
market, growth rate, etc.
Pro forma balance sheet
• A pro forma balance sheet summarizes the projected future status of a company
after a planned transaction, based on the current financial statements.
• The pro forma accounting is a statement of the company’s financial activities
while excluding “unusual and nonrecurring transactions” when stating how much
money the company actually made.
• In business, pro forma financial statements are prepared in advance of a planned
transaction, such as a merger, an acquisition, a new capital investment, or a
change in capital structure such as incurrence of new debt or issuance of equity.
• Pro forma figures should be clearly labeled as such and the reason for any
deviation from reported past figures clearly explained.
Considerations in Making Cash and
Capital Budget
• Identify and list your entity cash in flow sources. (example : Cash Sales, owner placement, bank loan, account
receivable payment: from credit card transaction or other transaction)
• Identify and list your entity cash outflow. (rent, electricity, interest payment, dividends payment, bank loan
payment, service charge, parking, extraordinary item.)
• Do a research whether your business need to comply with central government tax regulation and/or local tax
regulation, incorporate tax regulation to your cash budget.
• Incorporate BPJS Ketenaga Kerjaan dan BPJS Kesehatan, to your cash budget
• Incorporate legal and certification, (e.g. Halal Certification, ISO), accreditation to your cash budget
• Do your business need insurance ? (fire insurance, etc.) find insurances that will be beneficial for you business in
term of risk management aspects of the business
• List potential your sources of funds of your business (owner, banks, angel investor etc., what is the composition of
your entity's source of funds, calculate interest expenses etc. )
• Do your business need regular employee training ?
• Have your budget included fee for legal services ?
• Do your business must pay franchise fee ? Or will you be a franchisor ?