Business plan

Will I survive going into business? – better do a survival budget

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Producing a Survival Budget is a vital part of preparing for your Business.

Do you get to the end of the week and wonder where your money has gone? Or receive a bill and wonder how to pay for it?

By completing a Survival Budget honestly, you will be taking a good look at your personal finances and may see ways to reduce your outgoings. You will find out just how much money you need a year to live; it will also show you how much your new business will need to earn to make it a viable proposition for you.

Complete all sections and complete them honestly. For example, if you are chocoholic and buy three Mars Bars a week at 45p each, this would total over £70 a year – and a lot of calories! Whilst this may not seem a lot on its own, repeated a few times, the total soon adds up.

If you are currently receiving Housing or Council Tax benefits, you need to put the full amount of rent and council tax payable in the Survival Budget, as once you start trading you may lose these or have them reduced. Put the benefits you receive under “Income” at the end, so that you can see if you are solvent with your present income.

There are four columns in the table. The first lists all possible reasons to spend money; you may need to write in additional categories to personalise it.

The second is for any weekly expenditure, e.g. papers, housekeeping, etc. Once you have entered a figure here, multiply it by 52 and put the total in the fourth column (showing your annual expenditure).

The third column is the “per month” column. This is for amounts that you pay monthly, for example Direct Debits. Enter the figure in this column and then multiply by 12. If you pay Council Tax or Water Rates by Direct Debit, you will need to multify them by 10 to account for no payments being made during February and March.

The fourth column is the “per annum” column. This is for annual payments (e.g. Insurance or a Subscription) and for all the other payments that have been multiplied up to reflect their yearly total.

Add the “per annum” total carefully and this will show you what you spend each year.

Under “Income” work out how much you receive per annum. If you are working, you should put the Net figure you receive in the columns.

Now look at the information this gives you.

Is total income more than total expenditure? If so, are you saving money? If you are not, where has it gone? Did you spend it on something that is not accounted for in the budget? Was it a “one-off” expenditure, or could it happen again. If it could happen again, you need to add it to your expenditure figures.

Is total income less than total expenditure? If so, you are probably overdrawn at the bank and/or living on your credit card. This may not be the best time to start self employment as the benefits you are receiving may be reduced and your business may not pay you much to start with. Can you consolidate your debts in any way or reduce your expenditure?

Next is a separate sum. Look at your current income and add together any income that will definitely NOT be affected by your earnings; this may be such things as another wage earner in the family or your DLA. How much do they total per annum? Now look at the difference between this figure and your total annual expenditure. This is the minimum profit that your business will have to earn to support you. Divide it by 12 to see how much you will need to earn a month. This figure will need to go into your Cash Flow Forecast as “drawings”.

Download your sample Survival Budget now in either Word or Excel.

Note: If the annual figure is more than your Personal Tax Allowance your business will need to earn more than your basic Survival Budget shows to allow you to pay your Income Tax and National Insurance.

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