To access the Cost & Funding module, start by clicking on the Report menu on the bottom of the Left-side menu, and then clicking on the sub-menu button "Cost & Funding".
1- Modify the "Dates" field to select the date range you wish to see for your cost and funding.
2- Click on "Update" to refresh your report with the updated dates.
That being said, we do not recommend that you proceed in this way. We have witnessed far too many clients going bankrupt due to poor cost and financing planning. We understand that some simplistic tables are in circulation, often provided by financial institutions. However, these tables are inadequate. Here is the proof:
Let's take the example of the tea counter in a shopping mall. The project consists of the following expenditures, funding and investments:
- Lawyers for incorporation: $1,000 + plus taxes (payable in January 2021);
- Permit: $500 non-taxable (payable in January 2021);
- Total: $1,500.
Investments in leasehold improvements
- Designer fees for the local: $10,000 + taxes (payable in April 2021);
- Leasehold improvements: $9,000 + taxes (payable in 4 installments of $22,500 from January 2021 to April 2021);
- Total: $100,000.
Initial inventory investment
- Tea inventory: $2,500 non-taxable (payable in April 2021);
- Herbal tea inventory: $2,500 non-taxable (payable in April 2021);
- Total: $5,000.
- Seed grant of $5,000 (obtained in April 2021);
- Debt in the form of PPE of $90,000 representing 90% of the designer fees and leasehold improvements. The debt is disbursed gradually from January 2021 to April 2021 to allow the contractor's bills to be paid. The debt has a 12-month capital holiday to help with the start-up but still bears interest at the rate of 8% (no interest holiday);
- Investment of the promoter in share capital: $11,500 to cover expenses and the unfunded 10% of the project;
- Investment by the promoter in share capital:$2,5,000 to provide working capital for the start of the project.
Here's what your cost and financing chart will look like if you don't consider all the elements:
In this table, you have the impression that you do not have a liquidity problem and that you have a working capital of $2,500. However, in reality, this table does not take into account the fact that:
- You must bear $5,616 in taxes on the fourth payment of $22,500 to the contractor and the payment of $10,000 from the designer;
- You must bear $900 of interest payments starting in February 2021 because you have obtained financing for which you must pay interest;
- Your working capital is therefore no longer $2,500 but -$4,016 ( $2,500 - $5,616 - $900);
- You have a liquidity problem of $ 4K before you have even started your project!
Here's what your real Cost & Funding for this project should look like:
In Budgeto, self-generated funds represent the cash generated by the completion of your sales.
For example, if you sell take-out tea for $5 and your costs are 40% of the selling price for tea ($5 x 40% = $2) and $0.50 for glass, your total cost will be $2.50, or a gross margin of 50%. If you sell $10,000 worth of tea per month from April 2021 to December 2021, your total income for the year will be $80,000 and your cost $40,000, or $40,000 in self-generated funds.
It's important to understand that your payment terms have an impact on this figure. For example, if your customers have 60 days to pay you but have to pay your raw material suppliers 30 days in advance, your first sales will not generate cash because you have 2 months of accounts receivable from your customers and 1 month of financing from your suppliers.
In this example, after two months of operation, you have:
- $20,000 in accounts receivable;
- $10,000 in cash outflows to pay your suppliers in advance;
- So -$10,000 in self-generated funds.
Note: Self-generated funds have a positive impact on working capital if they are positive, but negative if they are negative.
Working Capital Fund (SRF)
In Budgeto, working capital simply represents the difference between Costs and Financing. If the funding is greater than the costs, the RIS is positive. If the costs are greater than the funding, the RIS is negative.
It's as simple as that!