he provisional budget is an essential part of the business plan. It is thanks to the provisional budget that you will be able to appreciate the long-term financial profitability of your business project. The provisional budget gives you an accurate view of your treasury movements.
The provisional budget, also called the cash forecast, actually allows you to track your future cash inflows and outflows (cash). You will be able to analyze, for the next 3 years, on a monthly basis (month by month), what are the amounts that go out and enter your treasury.
Without financial knowledge, one can easily make mistakes in preparing his provisional budget.Indeed, the provisional budget implies knowing how to do a significant number of financial calculations correctly. The provisional budget involves handling complex notions such as VAT, social contributions, tax rates and payment details.
In this article, we provide you with 10 tips and tricks to succeed with your tentative budget.. From the definition of the provisional budget to the way in which we select the hypotheses (income and expenses), going through the month-to-month analysis of the cash balance, the calculation of taxes, how to take payment details into account and the coherence of the provisional budget, we provide you with all our advice so that you can be sure that you are correctly analyzing the profitability of your business project.
LET'S START WITH THE DEFINITION OF TENTATIVE BUDGET!
A provisional (treasury) budget is the analysis of your treasury movements, cash receipts (inputs) on the one hand and cash outflows (outputs) on the other hand. To put it simply, an interim budget is the complete (but succinct) picture of all the money that will come in and go out of your cash register (or cash balance). We repeat it once more: the sums of money that are going to "enter" our box are called income and the sums of money that are going to "go out" from our box are called expenses.
The difference between your income and expenses is what is called cash flows.. The income is, for example, your sales (when someone buys one of your products there is money that goes into the box), or the money that you are going to inject into your company (contributions on behalf of current partners) or even that will receive from banks or investors. Regarding expenses, there are, for example, the salaries that you are going to pay, the cost of rent, the taxes that must be paid, etc. The difference between an income and an expense is then a cash flow (if you enter 100 euros (or pesos) and spend 25 euros (or pesos), then the final cash flow is 100-25=75 euros (pesos)) . If you spend more than you earn, then your expenses are more important than your income and your cash flow is then...negative (which it can be).
The purpose of a provisional budget is to ensure that your cash balance is never negative . Each month, you will then have cash flows that can be positive or negative. During the first few months of business, it is not uncommon to have negative cash flows. Indeed, when we are starting, we buy material, a place and equipment (for example). Likewise, one generates few sales. So your expenses exceed your income, so you have negative cash flow. Until then, there are no problems.
The accumulation of cash flows will give you your cash balance.Cash balance, to put it simply, is the money you have in the cash box. So this must always be positive (technically, we cannot have "negative money" in the box: we either have money or we don't). This is why we must always ensure that our cash balance is positive in our provisional budget. If your cash balance is negative, then (at your discretion) you will need to reduce expenses, increase sales forecasts, or apply for financing to fill the gap.
The end result of your tentative budget is the cash balance . It should never be negative!
YOUR PROVISIONAL BUDGET SHOULD NOT BE MADE HAPHAZARDLY
A provisional budget is prepared for 3 years in most cases, sometimes for 5 years . It is the standard duration for which a provisional budget is made. Certain budgets are also prepared for 5 years but this is something rare (it is difficult enough to forecast for 3 years in the future, so for 5 years the difficulty is greater).
Don't forget the taxes. Effectively, the provisional budget allows you to analyze all the amounts that enter and leave your cash balance. You will probably pay taxes as well as recover or deduct VAT on certain expenses. This should then appear on your provisional budget.
Don't forget the payment terms . Contrary to the provisional income statement, the provisional treasury budget takes payment terms into account (in the provisional income statement a product or expense is recorded on the date on which it is invoiced). Indeed, knowing that, in a provisional budget, we make an exact statement of what goes in and what goes out in your box, it is necessary to record the expenses exactly at the moment in which they occur.
Your provisional budget must be standardized. Don't include random lines, don't use inaccurate terms (for example, it doesn't say "money coming into the box" but "cash receipts"). A provisional budget is broken down into two parts: cash receipts and cash expenditures. At the bottom of the table that constitutes a provisional budget, you should see the cash flows and the cash balance clearly appear.
Your cash balance should never be negative. We have explained this point above and it is essential for your provisional budget to be successful. The cash balance, which is the last line of the provisional budget, should never, ever, and for no reason, be negative.
ASSUMPTIONS: THE HEART OF YOUR PROVISIONAL BUDGET
Try different assumptions and see how that impacts your tentative budget . If you have a good financial plan in Excel handy , then you can easily change the assumptions and see how that affects your tentative budget. If, for example, you find yourself in a negative cash balance situation, try to reduce investments and increase the income forecast. You will see the amount of your cash balance increase and may even turn positive.
Hypotheses should not be made at random.Of course, foreseeing the future is an exercise of great difficulty. Because of this, don't be blocked and don't expect the amounts provided to be exact. However, this is not a reason to make hypotheses at random. Each hypothesis must be the fruit of a reflection.
Always take a conservative approach. If you build a provisional budget, then it is very likely that you do not have a 100% clear and accurate idea of the expenses that you will generate with your next company. However, you have to make estimates. If you have obtained cost estimates, we advise you to take the higher estimates for expenses and the lower estimates for revenue. It is always good to consider a "conservative" scenario (some call it a "pessimistic scenario") to avoid unpleasant surprises.
Each hypothesis must be the result of reflection and not chance.
USE AN EDITABLE TEMPLATE TO SUCCEED WITH YOUR TENTATIVE BUDGET!
Download our sample financial plan for free . Our sample financial plan contains a complete interim cash budget, so you can see how to fix it and how to build it.
Our models contain all the financial tables necessary for a financing request . In addition to the provisional budget, our financial plan contains a provisional balance sheet, a provisional income statement, a financing plan, a table that allows analysis of the break-even point, details of intermediary management balances, as well as graphs and financial ratios. It is a perfect toolbox to analyze the long-term profitability of your business project.
Our models are adapted for each type of project . Each business plan model that we have on the platform is specific: restaurant, eCommerce, gym, etc. For example, in the case of a financial plan for a restaurant, you would have a list of typical restaurant expenses as well as suggestions for different ratios for a restaurant (how much does food cost based on sales, how much should you spend to staff, etc.).
Try different scenarios thanks to hypotheses. All financial business plan templates are fully editable and contain a section entirely dedicated to assumptions. In this way, you can easily test different scenarios, vary your expenses, increase the value of the basic basket (inflation), etc.
Easily check the consistency of your provisional budget . We know that our clients are not financial experts and that is why we help them easily verify if the financial plan they have drawn up is solid and coherent. In all of our Excel business plan templates, you will find a tab dedicated to this type of verification, which will clearly and simply tell you if your assumptions make sense.
All our models come with guides to facilitate their use. When we build a financial plan template , we put a lot of emphasis on the educational aspect and try to ensure that our clients do not feel lost when they establish their financial plan and tentative budget in Excel. This is why you will find instructions and indications in our financial plan models.
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