The Language of Small Business Texts and Vocabulary Training (for students of Economics) Part 1. Учебное пособие

Forecasting

6. Sale of assets

This section is for you to record the proceeds you expect to get from selling any assets, for example, a car or office equipment, rather than any sales of your products.

7. Capital

Put the amount of money you are going to invest and make sure you put it in the month you expect to invest it. If anyone else is expected to invest or to lend you money (not including an overdraft with the bank), slot it in here.

8. Payment to suppliers

Put in here when you expect you will have to pay suppliers for their services or materials. The longer you delay paying suppliers' invoices, the better it can be for your cash flow. This beneficial effect has to be balanced by any ill-will created by late payment. A realistic assumption for your cash flow forecast will be that you will not have to pay your suppliers' invoices until one month after you receive them.

Whether you are registered for VAT or not, enter the amount including any VAT you will be paying to your suppliers.

9. Cash purchases

If you have to pay cash on the spot for purchases from suppliers, estimate the amount (including any VAT) and time in this section.

10. Wages/drawings

Put here the amount after deducting tax and national insurance contributions under the PAYE system for wages.

11. PAYE/NIC

Total the amount of tax under the PAYE system and the amount of national insurance contributions you will deduct from your employees each month, as well as the amount of the employer's contribution. You have to send this money in to the tax collector within two weeds of the end of the month, so your payments of these amounts will be in the month after you have deducted them. If your business is a limited company and you pay

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yourself a salary as a director, your personal tax and national insurance contributions will also be collected in the way described above, if you are a sole trader or partner, your personal tax on what you pay yourself will not be collected in this way. Instead, you will pay tax and Class 4 national insurance contributions if you pay them, in two lumps, on 1 January and 1 July. Enter the amount in the section TAX PAYMENTS.

However, your Class 2 national insurance contributions will be collected each month, and you should reflect the amount here under PA YE/NIC.

12. VAT (net payment)

If you are not registered for VAT, do not enter anything here. If you are registered for VAT, you should estimate the amount of tax you will be paying over to the VAT collector each quarter.

If your sales are £250,000 a year or less, you may find it worthwhile to switch to the cash accounting scheme for VAT. If this is the case, what you should enter in your cash flow forecast is your estimate of the VAT you will receive form your customers in that quarter, because that is what you will pay (less VAT you can claim on your purchases). Note that you may also be able to pay VAT for the year in ten instalments.

13. Tax payments

If you run a limited company, enter the amount of tax you estimate you will pay on your company's profits and when you will pay it. Corporation tax, that is, tax on your company's profits, is payable nine months after the end of your accounting year.

If you are a sole trader or partner, your tax and any Class 4 national insurance contributions payable will be paid in two lumps – on 1 January and 1 July.

14. Rent

Enter the amount of rent you will pay in the months you will have to pay it.

15. Business Rate

Enter the amount of the business rate and when you will have to pay it. Do not forget you can opt to pay your rates monthly over a tenmonth period. This can improve your cash flow.

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16. Heating/lighting

These bills will be paid each quarter in arrears. Once you have received the bill, you will be able to delay payment by up to one month.

17. Telephone

The phone bill will be paid quarterly in arrears and you can probably take a further month's delay before you pay, although this is a delay which cannot be increased beyond the month.

18. Professional fees

Payment of these bills will be fairly erratic; you must make your best guess.

19. General expenses

Enter an estimate for those continuing and recurring, but small, expenses. These could include postage, fares, newspapers, or whatever is required in your business. Of course, if your business is a mailing service, for example, you should have a separate heading for postage. What exactly goes in here will have to be decided by you.

20. Capital expenditure

If you are going to buy any pieces of equipment, such as a car, typewriter, computer or machinery, enter the amount, including VAT, and when you estimate you will have to pay for it. If you are paying cash, put in the full amount. If you are going to buy on hire, purchase or using a loan, you will enter the amount of the deposit and the monthly payments separately and in the correct months. Leasing payments will be monthly.

21. Bank interest and charges

If you have an overdraft or bank loan, estimate the amount and frequency of the interest charged. Get a quote from the bank manager.

22. Other payments

What goes in here depends on the nature of your business. It could include insurance, but if this is of reasonable size, you should have a separate entry.

23. Closing bank balance

Work out the closing bank balance for the period by adding the opening bank balance to the total receipts and taking away the figure for total payments. The closing bank balance becomes the opening bank balance at the start of the next period.

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Profit and Loss Forecast

A profit forecast should show what level of profit you expect your business to produce at the end of the period, according to the accounting records you keep. Your accounts will not be drawn up on a cash bases, so many of the figures in you profit forecast will be different from those in the cash flow forecast. Below there is an explanation of how and why the figures will differ.

Detailed Calculations for Profit and Loss Forecast

1. Sales

The figure you put in here is the sum of the invoices you expect to send out during the accounting period. It is not necessarily the sum of the cash you receive during the period (unless your business is a shop which makes only cash sales, for example). You could also describe the sales figure as the cash you receive during the period plus what you are owed at the end or the period less what you were owed at the end of the previous period.

If you are registered for VAT, you do not include the amount of VAT you charge on your sales.

If your business is likely to be seasonal, or if you know of events coming up which might temporarily increase or decrease your sales figures, show this monthly effect. A reader of your business plan will not be impressed by a monthly figure which is level or shows a very steady rate of increase, unless, of course, you can demonstrate that this is a realistic assumption.

When forecasting sales you need to consider two factors:

•the number of units you can sell;

•the price you can get for these units.

2. Cost of sales: Purchases

You are estimating for this section those costs which you would expect to vary with the level of your sales; if your sales go up, the level of direct costs goes up and vice versa. In real life, things are nor quite so cut-and-dried and often the distinction between direct costs and overheads is blurred. The important point is for you to have a clear idea about which you are going to regard as overheads.

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Purchases could be the raw materials you buy form your suppliers to manufacture your products. Or, if you are not a manufacturing business, they would be the items which you purchase to sell on to your customers, having added on your profit margin.

The figure you put in your profit and loss account will be different from the cash flow figures, payment to suppliers and cash purchases. For the profit calculation you need the sum of the invoices you receive in the period for materials.

Another way of working out the purchase figure for this forecast is to say it is what you pay for supplies in the period plus what you owe at the end of the period less what you owed at the start of the period.

If you are registered for VAT, you do not include the figure for VAT which you are charged by your supplier for your profit forecast. If you are not registered for VAT, you do not include the figure for VAT.

Points to look out for when you are forecasting costs include:

•make sure that the level of costs corresponds to the amount of sales you expect to make;

•allow for any changes in the prices of raw materials which you can reasonably expect to occur in the period.

3. Cost of sales: Labour

Here include the cost of your employees who are directly involved with manufacturing your product. As with purchases, the distinction between staff who are directly involved with production and those who count as overheads can be blurred. On the whole, if you do not think that employees' wages are directly related to the amount of work you have, it may be more satisfactory to include employee costs in overheads.

Remember to include all your employee costs; this implies gross salary, your nation insurance contributions as an employer plus any other costs.

The figures may diverge slightly from those in the cash flow forecast, as PAYE contributions are due the following month. Differences will only show up when you first take on an employee or if the employee's salary rises.

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4.Costs of sales: Other direct costs

Estimate here any other direct costs which you foresee.

5.Overheads: Rent and rates

In the profit forecast, the total for rates should be spread evenly over the whole year. With rent, you should enter the cost for each period, which may not coincide with the timing of the payments.

6. Overheads: Heating/lighting

You need an estimate for the cost of heating and lighting which you will use in each period. As you will receive bills quarterly in arrears, you may need to estimate the cost in advance of each bill.

7. Overheads: Telephone

The treatment of the phone is similar to that for heating and lighting.

8. Overheads: Professional fees

The figure to include here is what it costs you in legal or accounting fees. You should include the cost in the period in which the work is done for you, even if you do not receive the bill until the next period.

9. Overheads: Depreciation

Depreciation is what you deduct from the value of an asset to reflect the fact that it is wearing out. This is an item which does not appear on the cash flow forecast. You work it out for each period by taking the value of capital equipment at the start of each period and estimating a figure for its depreciation during the period. Typically, cars and office equipment are written off over three, four or five years.

Note that you do not put in the profit forecast what you pay for capital equipment, which does appear in the cash flow forecast.

10. Overheads: Employee costs

This should be your estimate of employee costs which are not directly related to the volume of your sales.

11.Overheads: Other overhead expenses

Include overhead expenses not slotted in elsewhere.

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12.Overhead: Drawings What you pay yourself.

13.Overhead: Interest

Estimate the interest on loans and overdrafts during the year.

14.Miscellaneous income

Put here an estimate of the other income you might receive, not as a result of the sales of your products. For example, if you have money invested, it might include interest.

15. Working out the net profit figure

You can work out a gross profit figure (C) by deducting the figure for direct costs (B) from the sales figure (A).

Once you have arrived at an estimate for gross profit, deduct the figure for overheads (D) and add on the amount of any miscellaneous income (E) to give your forecast net profit level (F).

Balance Sheet Forecast

A balance sheet for your business will show what you owe and what you own on one particular day. A forecast one will show your estimate of that picture at the end of the period.

Of course, your accountant should be willing to help if you find it difficult to produce a balance sheet yourself. If your business is likely to be fairly small-scale and you are only approaching your bank manager, and for a fairly modest sum, a forecast balance sheet may not be necessary.

In this section there are brief guidelines on how to work out what the balance sheet might be at the end of the period, once the forecast cash flow and profit and loss account are drawn up.

Detailed Calculation for Balance Sheet Forecast

One important check on your balance sheet figures is to note that the figure for total assets should equal the figure for capital and liabilities together.

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1. Fixed Assets

These figures are fairly straightforward to work out. You know from your cash flow forecast when you plan to buy particular bits of equipment. Include all equipment which you have received before the end of the period, even if you have not paid for it. A fixed asset is something of a permanent nature, likely to remain in use in your business for some time.

The value you put in here is not just what you paid for the equipment; you also have to allow for the fact that it will have depreciated since the period started. You can obtain the figure for depreciation from your profit forecast. Deduct these figures from the appropriate cost of each piece of equipment, or written-down value at the start of the period, and enter the figures here.

Example

Richard Petworth is working out the depreciation for the office furniture he has bought for his business. There are a number of different ways of calculating this, but for office furniture he thinks he will write off the value in equal lumps over five years; this is called straight-line depreciation.

The furniture cost Richard £2,000. This means he writes off £400 from the value of it each accounting year. The written-down value at the end of the first accounting year is £1,600.

2. Currrent Assets

The main current assets you are likely to have in your business are:

•cash;

•debtors (that is, what your customers owe you);

•stock (that is, products you have in store, either raw materials to make your product, half-finished products or your finished products which are not yet sold).

The figure for cash you will be able to take straight from your cash flow forecast.

You can derive the figure for debtors from the cash flow and profit forecasts. You will have made some assumption about number of units sold in each month and how quickly you will be paid your cash. From this you can calculate how much you would be owed for

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sales by your customers at the end of each period. Remember to include VAT in your figure if you are registered for VAT.

The figure for stock can also be derived from the other two forecasts. Count as stock all goods received from your suppliers to be used in your product but not yet used in products sold, even if you have not yet paid your suppliers' bills.

3. Capital

Put here the capital you used to start your business. The figure for profit and loss you take from your profit forecast. It is the cumulative figure at the end of the period. If you forecast a loss, put it in brackets and it will be deducted from your capital.

4. Liabilities

Loans from the bank or another lender which are not due to be repaid within one year are medium or long-term liabilities. Current liabilities consist mainly of:

•overdraft;

•tax payable;

•creditors (that is, what you owe your suppliers at the end of the period).

The figure for overdraft can be taken from your cash flow forecast.

If you have made a profit in the period, you will need to estimate what tax will be payable. You may also have to include a figure for what you owe Customs and Excise in VAT (of course, if you are owed VAT, you should have an entry in the current assets section for this).

In the same way as you worked out debtors, so creditors can be estimated using the two other forecasts. It is the value of the amount of goods you have but which you have not yet paid for.

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