Budget for your business

Capital needs: what do you have to pay out before you start?

The capital need is the sum of everything you have to pay before the first krona comes in. Add it up before you start, so that nobody gets an unpleasant surprise after a month. How large it becomes depends entirely on what you sell. A service company can get by on a few thousand SEK, while someone who buys in inventory needs considerably more. A limited company (aktiebolag) also needs at least 25,000 SEK in share capital, and registration with the Swedish Companies Registration Office (Bolagsverket) costs money.

Four kinds of money to keep apart

• Start-up costs you pay once, regardless of how much you sell: registration, domain, printing plate, first inventory.
• Fixed costs come every month even if you sell nothing: web hosting, accounting software, insurance, rent, and salary to yourselves if you are going to take any.
• Variable costs grow with every unit sold: material per product, shipping bag, card fee per purchase.
• VAT is, for a VAT-registered company, not a cost but money that passes through the till. One fifth of a consumer price with 25 percent VAT goes to the Swedish Tax Agency (Skatteverket).

Pricing is based on the variable costs. If you do not know what each unit costs to make, you cannot know if the price is good.

Calculation example: the t-shirt company

A business sells printed shirts to private individuals for 250 SEK each. The amounts in the table are excluding VAT:

If the company is VAT registered

Of the customer's 250 SEK, 50 SEK is VAT, so 200 SEK stays with you. Minus the variable costs, 125 SEK, 75 SEK remains per shirt; that is called contribution margin. The startup costs are 1,250 SEK, and 1,250 divided by 75 is just under 17. Only after seventeen shirts sold have you earned back what you laid out.

If the company is VAT exempt, or is a UF company

You do not add VAT to the price, so the full 250 SEK is yours. But you also cannot deduct the VAT on your purchases, so the shirt costs you 150 SEK instead of 120 and the startup costs come to about 1,560 SEK. The card fee has no VAT. The contribution margin becomes 95 SEK, and break-even lands here too at seventeen shirts.

Seventeen, not ten as you easily arrive at if you forget the VAT. That is the difference between a calculation that holds up and one that does not.

Break-even, explained simply

Break-even is the point where revenue has covered all costs. Calculate it like this: the start-up costs, plus the fixed costs for the period, divided by the contribution margin per unit sold. If the answer is more than you can realistically sell during the time you have allowed for, raise the price, lower the cost or choose another product. Do the calculation before you buy anything in, not afterwards.

Keep track all year

Make one column for planned and one for actual in a spreadsheet, and update it every month. Add a cash flow budget: when the money actually comes in and goes out. A company with a profit can still run out of money if customers pay in 30 days and the supplier wants payment right away. Also count on the tax on the profit, such as self-employment contributions and income tax in a sole proprietorship (enskild firma) or corporate tax in a limited company (aktiebolag).

Actual Budget is free and can be run locally. It is built for personal finance but works for tracking a simple budget; bookkeeping still needs a real program. Read the guide about bookkeeping so that the accounts hold up when the year is to be closed.

The VAT and tax information here is our reading of the rules, not tax advice. We are not accountants, so check with the Swedish Tax Agency (Skatteverket) what applies to your company.