We have prepared a simple P&L budget model targeted for a E-Commerce or Marketplace business.

However, it's a good starting point for any business to familiarize how key metrics and input variables affect the broader business from a financial - Profit & Loss statement point of view.

You can find the link to the budget model at the bottom of the page. Before that you can find a brief overview why financial budgets are necessary and how they benefit companies.

Why have a financial budget model in the first place?

There‘s an infamous saying: all models are wrong, but some are useful. Budget models are not the exception to the rule.

So why are budget models necessary and how are they useful?

Whilst this is not a philosophy class and we don‘t want to bombard you with famous quotes, the following quote summarizes the necessity of a budget model quite well: if you fail to prepare, then prepare to fail.

It‘s not uncommon for start ups or young companies to have sporadic spending and often times chaos when it comes to their finances and spending.

At best, this almost always leads to overspending and miss-using of the funds for tools, software or marketing amongst other things that are not really benefiting the company in a meaningful manner, not to mention missing out on additional revenue opportunities.

At worst, there are cases when companies are unaware or misjudge their finances and spending capacity, which leads to them running out of runway (runway is the amount of time a company has before it runs out of cash), which can very quickly lead to bankruptcy.

To avoid such situations that‘s why most companies, and in particular venture backed start ups, almost always have a budget model.

How companies benefit from having a budget model?

Below we have outlined some of the key benefits of having a budget model:

• Accountability. Provides context to the executive members as well as the internal team whether targets are being met, exceeded, or underperformed.

• Goal setting. Having set out a realistic financial target makes goal setting and alignment amongst the company and departments more seamless and beneficial, as the goals should be tied to the actual growth of the company.

• Spending awareness/budget. As mentioned above, without a set out plan spending can get out of hand without actual benefits to the company. Having calculated the necessity, impact and return on investment (ROI) of major expense items can significantly improve the efficiency and operations of a business. However, this does not mean that every single small expense should scrutinized - you should focus you resources, time and energy on the major expense items.

• Runway. Probably the worst thing that can happen to a business is to run out of cash. Continuously monitoring and forecasting runway is essential to avoid unpleasant surprises for the business.

• Raising funding. Investors, in particular venture capital (VC) funds are highly interested in the growth trajectory of the company. Whilst in a low-interest rate environment it was mostly „growth at all costs“ type of mentality, now VCs are very keen on cost optimization and positive cash flowing businesses and start ups. Therefore, attention to spending has meaningfully increased over the last several years.

A budget model should be used as a guide

Finally, it does not mean that the financial budget model should be written in stone and followed to the dot. It should be used as a guideline and the model can always be adjusted along the way to reflect the ever-changing micro and macro economic conditions, and most importantly the changes that are happening within the business itself.

Click here to access the E-commerce & Marketplace P&L Forecast Template