BPK3013
Engineering Economics
& Entrepreneurship
TOPIC 5: Financial Plan
Contents
Introduction to Financial Plan
Projects Implementation Costs/Cost of Project
Sources of Financing
Repayment and Depreciation Schedule
Pro-forma Financial Statements
Income Statement
Balance Sheet
Cash Flow Statement
Introduction to Financial Plan
Also another critical aspect of a Business Plan, as to
ensure that the figures and numbers of your cost,
sales, revenue, profit and others are realistic.
The financial plan basically consist of the following
aspect:
Cost and capital expenditure
Financial sources e.g. your own contribution, bank
loan, hire purchase etc
Cash flow analysis - monthly, yearly, 3 years and so
on
Income statement - yearly, 3 years and so on
Financial Statement:
Break even analysis - how long your business will be
operating before covering all the cost incurred during
the start up
Introduction to Financial Plan
Financial planning is the task of
determining how a business will afford
to achieve its business goals and
objectives. It will determine the
following items:
Cost of project
Working Capital Table
Sources of financing
Loan amortization schedule
Depreciation schedule
Forecasted financial statement
Forecasted cash flow
Forecasted Balance sheet.
Financial Plan - Cost of Project
Cost of project or known as Project
Implementation Cost (PIC) is an initial
capital expenditure needed to start
the business.
Components that will be determined
in cost of project are:
Total Fixed Asset
Total Working Capital
Others Expenditure
Financial Statement:
Unexpected Expenditure
Financial Plan - Cost of Project
Cost of Project
RM
RM
(I) Total Fixed Asset
Machines and Equipments
10,000
Furniture and Fittings
10,000
Vehicles-car
25,000
Renovation
6,000
Signboard
2,000
53,000
Financial Plan - Cost of Project
Cost of Project
RM
RM
(II) Total Working Capital
Marketing Expenditure
3,300
Operational Expenditure
**
10,600
Administrative Expenditure
***
4,800
18,700
Financial Plan - Cost of Project
Financial Statement:
Cost of Project
RM
RM
(III) Others Expenditure
Deposit-Rent
1,000
Deposit-Water & Electricity
300
Registration cost
800
2,100
TOTAL
(IV) Unexpected Expenditure
73,800
(5%)
GRAND TOTAL
Financial Plan - Working Capital
Table
3,690
77,490
Working Capital Table
Type of Expenditure
RM
RM
RM
*
Marketing expense
Promotion (RM800* 3 months)
Traveling (RM300*3 months)
2,400
900
3,300
Financial Plan - Working Capital Table
Working Capital Table
Type of Expenditure
RM
RM
RM
Financial Statement:
**
Operational expense
Raw materials (500* 3 months)
1,500
Utilities (100*3 months)
300
Rent (500*3)
1,500
Labor (2,400* 3 months)
7,200
Maintenance
100
10,600
Financial Plan - Working Capital Table
Working Capital Table
Type of Expenditure
***
RM
RM
RM
Administrative expense
Salaries (RM1500*3 months)
Utilities (100*3 months)
4,500
300
4,800
18,700
Financial Plan Financing
Sources
Financing Sources
No.
1
Item
Total (RM)
Owners Equity
- Working Capital
10,000
Debt: Account Payable (Working Capital)
1,500
Debt: Bank Loan
Financial Statement:
- Fixed Assets (machines, furniture, renovation)
28,000
- Working Capital (Balance)
7,200
- Others expenditure
2,100
- Down payment- Car
2,500
- Unexpected expense
3,690
Debt: Hire Purchase - Car
22,500
77,490
Financial Plan Loan Amortization
Schedule I
Loan amortization schedule I
Total loan
Interest rate
45,000
5%
Payback Years
5 years
Annual interest = 5%*45,000
Annual principal = 45,000/5
2,250
9,000
Total annual repayment
11,250
Total monthly repayment= 11,250/12
938
Financial Plan Loan Amortization
Schedule I
Year
Interest
Principal
Total
repayment
Current
Balance (RM)
45,000
2,250
9,000
11,250
36,000
2,250
9,000
11,250
27,000
2,250
9,000
11,250
18,000
Financial Statement:
4
2,250
9,000
11,250
9,000
5
Total
2,250
11,250
9,000
45,000
11,250
56,250
Financial Plan Loan Amortization Schedule
II
Loan amortization schedule II
Total loan
Interest rate
Payback Years
Annual interest = 4%*22500
Annual principal =225000/5
RM22,500
4%
5 years
900
4,500
Total annual repayment
Total monthly repayment = 5,400/12
5,400
450
Financial Plan Loan Amortization Schedule
II
Year
Interest
Principal
Total
repayment
Current
Balance (RM)
22,500
900
4,500
5,400
18,000
900
4,500
5,400
13,500
900
4,500
5,400
9,000
900
4,500
5,400
4,500
900
4,500
5,400
Financial Statement:
Total
4,500
22,500
27,000
Financial Plan Depreciation
Schedule I
Asset name
Car
Purchase cost
RM25,000
Useful life
7 years (salvage value RM8,000)
Year
Annual
depreciation
Accumulated
depreciation
Book value
25,000
2,429
2,429
22,571
2,429
4,858
20,142
2,429
7,287
17,713
2,429
9,716
15,284
2,429
12,145
12,855
2,429
14,574
10,426
2,429
17,003
7,997 (><8,000)
Annual depreciation =(25,000-8,000)/7
2,429
Monthly depreciation =2,429/12
202
Financial Plan Depreciation Schedule II
Asset name
Machines and equipment
Purchase cost
RM28,000
Useful life
6 years salvage value:RM6,000)
Year
Annual
Accumulated
depreciation
depreciation
Book value
28,000
3,667
3,667
24,333
3,667
7,334
20,666
3,667
11,001
16,999
3,667
14,668
13,332
3,667
18,335
9,665
Financial Statement:
6
3,667
Annual depreciation =28,000-6,000/6
22,002
5,998 (><6,000)
3,667 Monthly depreciation =3,667/12 306
Introduction to Financial
Statement
Prepared to communicate important accounting information to
users.
Four Types of Financial Statements:
o Income Statement/ Statement of Financial
Performance - The income statement shows the
net income or loss incurred within a certain
period of time.
o Owners Equity Statement /Statement of Financial
Position -This statement summarizes the changes
in owners equity.
o Balance Sheet/ Statement of Financial Position -A
Balance Sheet shows companys financial
position of assets, liabilities and owners equity at
a point in time. o Cash Flows Statement -A Cash
Flow Statement summarizes inflows and outflows
of cash for the business.
Income Statement
1.
The income statement reports the results
from operating the business for a period of
time, such as a year.
2.
It is helpful to think of the income
statement as comprising four types of
activities: a. Selling the product.
b. The cost of producing or acquiring the goods or services sold.
c. The expenses incurred in marketing and distributing the
product or service to the customer, along with administrative
operating expenses.
Financial Statement:
d. The financing costs of doing business, for example, interest
paid to creditors and dividend payments to the preferred
stockholders
Income Statement
[Entity] Name of Company
[Title] Statement of Financial Performance
[Period] For the month/year ended 31 December 2005
RM
RM
Revenue
XXX
( Less)
Cost of goods sold
Gross Profit
XXX
XXX
( Less)
Salaries
Rental
Advertising
Water & electricity
Depreciation
Miscellaneous
equals
XXX
XXX
XXX
XXX
XXX
XXX
Net profit (loss)
XXX
XXXX
Income Statement
Income. Includes all the income generated by the
business and its sources.
Cost of goods. Includes all the costs related to the sale
of products in inventory.
Financial Statement:
Gross profit margin. The difference between revenue
and cost of goods. Gross profit margin can be expressed
in dollars, as a percentage, or both. As a percentage, the
GP margin is always stated as a percentage of revenue.
Operating expenses. Includes all overhead and labor
expenses associated with the operations of the business.
Total expenses. The sum of all overhead and labor
expenses required to operate the business.
Net profit. The difference between gross profit margin
and total expenses, the net income depicts the
business's debt and capital capabilities.
Income Statement (cont)
Depreciation. Reflects the decrease in value of capital
assets used to generate income. Also used as the basis
for a tax deduction and an indicator of the flow of money
into new capital.
Net profit before interest. The difference between net
profit and depreciation.
Interest. Includes all interest derived from debts, both
short-term and long-term. Interest is determined by the
amount of investment within the company.
Net profit before taxes. The difference between net profit
before interest and interest.
Taxes. Includes all taxes on the business.
Profit after taxes. The difference between net profit
before taxes and the taxes accrued. Profit after taxes is
the bottom line for any company
Financial Statement:
Pro Forma Income Statement
Aisha Beauty Salon Enterprise
Pro Forma Income Statement
For the year ended 31 December 2009
RM
Sales revenue
RM
90,000*
Financial Statement:
Less: Cost of goods sold
46,800
Gross Profit
43,200
Less: Selling and administrative expense
Administrative (4,800/3 months: 4,800*4)
19,200
Marketing (Refer Pro-forma Cash Flow Statement)
6,000
Others (Refer table on Cost of Project)
2,100
Interest (2,250 + 900)
3,150
Depreciation (2,429 + 3,666)
6,095
36,545
6,655
Net profit
Balance Sheet
The balance sheet provides a snapshot of the firms
financial position at a specific point in time, presenting
its asset holdings, liabilities, and owner equities.
Assets represent the resources owned by the firm.
1. Current assetsconsisting primarily of cash, marketable
securities, accounts receivable, inventories, and prepaid
expenses.
2. Fixed or long-term assetscomprising equipment, buildings,
and land.
3. Other assetsall assets not otherwise included in the firms
current assets or fixed assets, such as patents, long-term
investments in securities, and goodwill.
Balance Sheet (cont)
The liabilities and owners equity
indicate how those resources are
financed.
Financial Statement:
1. The debt consists of such sources as
credit extended from suppliers or a loan
from a bank.
2. The equity includes the
stockholdersinvestment in the firm and
the cumulative profits retained in the
business up to the date of the balance
sheet.
Balance Sheet
Name of Company
Balance Sheet
As at December 31 2005
Liabilities and Owners Equity
Asset
Current Assets
Cash
Current Liabilities
Accounts payable
Accounts receivable
Supplies
Prepaid rent
Notes payable
Accruals
Unearned revenue
Fixed Assets
Land
Building
accumulated depreciation
Less:
Machinery
Non-current liabilities
Loan
Total Liabilities
Owners equity
Total Assets
Total Liabilities and Owners Equity
Pro Forma Balance Sheet
Aisha Beauty Salon Enterprise
Pro Forma Balance sheet
Financial Statement:
As at 31 December 2009
ASET
Current asset
Finished inventory
2,000
Cash
25,450
27,450
Total current asset
Fixed asset
Machines/equipment/others
28,000
- accumulated depreciation
3,667
Book value of machineries/others
Car
25,000
- accumulated depreciation : car
Book value for car
24,333
2,429
22,571
Total fixed asset
45,811
TOTAL ASSET
74,354
Pro Forma Balance Sheet
Aisha Beauty Salon Enterprise
Pro Forma Balance sheet
As at 31 December 2009 LIABILITY
Current liability
3,699
Account payable
Long term liability
Bank loan
36,000
Hire purchase
18,000
Total Long Term liability
TOTAL LIABILITY
OWNER'S EQUITY
Beginning capital
Net profit
54,000
56,607
10,000
6,655
ENDING CAPITAL
16,655
TOTAL LIABILITY AND EQUITY
74,354
Pro Forma Cash Flow Statement
Financial Statement:
Month
A
ITEMS
12
TOTAL
10,000
21,400
32,138
100,000
CASH INFLOW
TOTAL CASH INFLOW
CASH OUTFLOW
TOTAL CASH OUTFLOW
32,600
5,800
5,300
98,900
(22,600)
15,600
26,838
26,838
SURPLUS/DEFICIT
Loan
Short term financing
ENDING CASH BALANCE
18,400
14,213
25,450
25,450
43,500