Transcript Slide 1
Financial Plan
Provides ‘E’ with complete picture of how much & when funds are coming into the Org are going How much Where cash is available & financial position of the firm funds projected 10-1
Helps new venture with most common problem- lack of cash Explain to potential investor ‘E’ plans to meet financial obligations How would he pay off debt or provide good ROI 3 Years of projected financial data to satisfy any outside investors First year should reflect Monthly data 10-2
Operating and Capital Budgets
(1 of 2) Developed before the pro forma income statement. Sales budget: estimate of the expected volume of sales by month.
Cost of sales can be determined from the sales forecasts. In manufacturing ventures: costs of internal production or subcontracting are compared. Budgets reflects seasonal demand or Marketing programs than can increase demand & inventory Ventures in which high level of inventory are necessary or where demand fluctuates significantly because of seasonality ----This Budget is valuable tool to asses cash needs 10-3
Example of a Manufacturing Budget
<
Operating and Capital Budgets
(2 of 2) Operating costs: List of fixed expenses incurred regardless of sales volume. Rent, Utilities, Salaries, Interest, depreciation, insurance Variable expenses which may change from month to month depending on sales volume, seasonality or opportunities for new businesses Advertising & selling expense Capital budgets provide a basis for evaluating expenditures that will impact the business for more than one year.
CB may project expenditure for new Equipment, vehicles, computers etc 10-5
Example of an Operating Budget
<
Pro Forma Income Statements
(1 of 2) Pro forma income: projected net profit calculated from projected revenue minus projected costs and expenses.
Sales by month is calculated first.
Basis of the figures: marketing research, industry sales, and some trial experience. Forecasting techniques may be used.
New ventures take time to build up sales. Projections of all operating expenses for each of the months during the first year should be made. 10-7
Pro Forma Income Statements
(2 of 2) Increasing selling expenses as sales increase should be taken into account.
Changes in expenses during the first year can necessitate month-by-month illustration.
Increase in individual expenses need to be reflected in the first year’s pro forma income statement.
Projections should be made for years 2 and 3 as well. 10-8
Example of a Pro Forma Income Statement
<
Pro Forma Cash Flow
(1 of 2) Projected cash available calculated from projected cash accumulations minus projected cash disbursements.
Cash & profit are not the same (Difference between a Company’s total revenue & its total expense) Cash is the money that is free & readily available to use in a business Sales may not be regarded as cash. Use of profit as a measure of success for a new venture may be deceiving.
10-10
Pro Forma Cash Flow
If disbursements disbursements are greater than receipts in any time period the entrepreneur must either borrow funds or have cash in bank account to cover the higher Cash flow statement is based on best estimates.
10-11
Example of a Pro Forma Cash Flow
<
Pro Forma Balance Sheet
Pro forma balance sheet: summarizes the projected assets, liabilities, and net worth of the new venture.
A picture of the business at a certain moment in time. Does not cover a period of time.
Consists of: Assets: items that are owned or available to be used in the venture operations.
Liabilities: money that is owed to creditors.
Owner’s equity: amount owners have invested and/or retained from the venture operations.
10-13
Example of a Balance Sheet
<
Break-Even Analysis
Break-even: volume of sales where the venture neither makes a profit nor incurs a loss.
Break-even sales point indicates the volume of sales needed to cover total variable and fixed expenses.
The break-even formula: B/E(Q) = TFC SP – VC/Unit (Marginal Contribution) Major weakness in calculating the breakeven lies in determining if a cost is a fixed or variable.
10-15
Graphic Illustration of Breakeven
<