10-1

Financial Plan

Provides ‘E’ with complete picture of how much & when funds are coming into the Org- Where funds are going- How much cash is available

& projected financial position of the firm

10-2

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

10-3

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

10-4

Example of a Manufacturing Budget

<<Insert Table 10.1>>

10-5

Operating and Capital Budgets (2 of 2)

Operating costs: List of fixed expenses incurred regardless of sales

volume.

Variable expenses which may change from month to month depending on sales volume, seasonality or opportunities for new businesses

Capital budgets provide a basis for evaluating expenditures that will impact the business for more than one year.

Rent, Utilities, Salaries, Interest, depreciation, insurance

Advertising & selling expense

CB may project expenditure for new Equipment, vehicles, computers etc

10-6

Example of an Operating Budget

<<Insert Table 10.2>>

10-7

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.

10-8

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.

10-9

Example of a Pro Forma Income Statement

<<Insert Table 10.3>>

10-10

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.

10-11

Pro Forma Cash Flow

If 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 disbursements

Cash flow statement is based on best estimates.

10-12

Example of a Pro Forma Cash Flow

<<Insert Table 10.6>>

10-13

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.

10-14

Example of a Balance Sheet

<<Insert table 10.7>>

10-15

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:TFC

B/E(Q) =SP – VC/Unit (Marginal Contribution)

Major weakness in calculating the breakeven lies in determining if a cost is a fixed or variable.

10-16

Graphic Illustration of Breakeven

<<Insert Figure 10.1>>