Module 8
Financial Plan
P207-230
What do you need to know
• Describe the sources of long term and short term
capital
– Describe fixed and working capital
– How do you obtain equity capital
– Name the instruments for borrowed capital
• Explain the functions of financial statements
– Complete a projected cash flow statements
– Complete a statement of profit or loss
• Determine the amount off the loan requirements
• Complete the financial plan of the proposed
business P 207
Source of financing
Type of capital
Fixed Capital Working Capital Growth Capital
• Money needed to
• Capital that you buy run your business
buildings, machinery, • capital that you use • Existing business
equipment, vehicles to pay raw material, use this capital to
and furniture wages electricity expand or change
• Use in the business and other expenses direction
• Balance sheet • Cash flow statement
P 208 - 209
Equity Financing
Debt financing
Financing Equity (Borrowed capital)
Short term loans
• Bank overdrafts
• Trade credit
• Personal funds – savings
• Friends and relatives – Medium term loans
“love money” • Hire purchase
• Equity shares – C.C or • Leasing
Partnerships take in a
partner or member Long term loans
• House bonds
P 210 - 212
Financial concepts
• Assets
– Two major categories
Current Assets Fixed Assets
Cash: money in the bank Machinery, plant and equipment: depreciate
over a period of time
Debtors: sales taken place money due to Land and buildings: land and buildings owned
company by the business
Inventory: raw materials or finished goods
• Liabilities
– The claims of the business and the owner are liabilities
1. Current liabilities
• Creditors: people that your business owes money
• Bank overdrafts
• Taxation
2. Long-term liabilities
• Loans made by financial institutions to your business
P212 - 213
Income statement
Account Titles Debit Credit
Sales XXXX
LESS Cost of sales XXXX
Opening Stock XXXX
Plus Purchases XXXX
Less: closing stock XXXX
GROSS PROFIT XXXX
Less expenses XXXX
Salaries XXXX
Stationary XXXX
Telephone XXXX
Water XXXX
NET PROFIT(+) XXXX
OR
NET LOSS(-)
Start up costs
FIXED ASSETS
(benefits company)
TOTAL
MONTHLY EXPENSES
(what you spend every month)
TOTAL
PRE-OPERATING EXPENSES
(what you need to start
business)
TOTAL
Budgeting
• Purpose
– Plan operations
– Meet financial goals
– Transform goal into reality
– Control method
• Types
1. Sales forecast budget
• Indicate expected sales for future
• Units x selling price = sales
2. Operating expense budget
• Indicate all operating expenses
• Units x cost price
3. Cash flow budget
– Flow of cash in your business
P 217 - 218
Cash Flow Statement
January February March April
Bank balance at the
beginning of the month
Cash sales
Credit sales
Other income
TOTAL CASH AVAILABLE
Monthly expenses
Cash purchases
Credit purchases
Other payments
TOTAL CASH PAYMENTS
Bank balance at the end of
the month