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Business Planning and Entrepreneurship by Michael Kraten

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Chapter 4

Assessing Preliminary Profitability With Flexible Budgets

About This Chapter

Chapter 4 concludes our exploration of the business model by describing how entrepreneurs assess the potential profitability of their enterprises with flexible budgets. Instead of simply preparing a single “most likely” profit budget, it is appropriate to create three distinct budgets, with assumptions ranging from relative pessimism to relative optimism.

The “bottom lines” of each of the three budgets should be compared to the expectations of the organization as a whole. A loss in the pessimistic scenario budget might be acceptable, for instance, if the entity is a small start-up division within a large and wealthy firm. But a profit in the optimistic scenario ...

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