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BPK3013

Engineering Economics
& Entrepreneurship

TOPIC 5: Financial Plan


Contents
 Introduction to Financial Plan
 Project’s 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
 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
 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
Cost of Project RM RM

(III) Others Expenditure

Deposit-Rent 1,000

Deposit-Water & Electricity 300

Registration cost 800 2,100

TOTAL 73,800

(IV) Unexpected Expenditure (5%) 3,690

GRAND TOTAL 77,490


Financial Plan - Working Capital Table

Working Capital Table

Type of Expenditure RM RM RM

Marketing expense

Promotion (RM800* 3 months) 2,400

Traveling (RM300*3 months) 900 3,300


Financial Plan - Working Capital Table

Working Capital Table

Type of Expenditure RM RM RM
**
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) 4,500

Utilities (100*3 months) 300 4,800 18,700


Financial Plan – Financing Sources
Financing Sources
No. Item Total (RM)
1 Owners’ Equity
- Working Capital 10,000
2 Debt: Account Payable (Working Capital) 1,500

3 Debt: Bank Loan


- 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
4 Debt: Hire Purchase - Car 22,500
77,490
Financial Plan – Loan Amortization Schedule I

Loan amortization schedule I


Total loan 45,000
Interest rate 5%
Payback Years 5 years

Annual interest = 5%*45,000 2,250


Annual principal = 45,000/5 9,000
Total annual repayment 11,250
Total monthly repayment= 11,250/12 938
Financial Plan – Loan Amortization Schedule I

Year Interest Principal Total Current


repayment Balance (RM)
0 45,000
1 2,250 9,000 11,250 36,000
2 2,250 9,000 11,250 27,000
3 2,250 9,000 11,250 18,000
4 2,250 9,000 11,250 9,000
5 2,250 9,000 11,250 -
Total 11,250 45,000 56,250
Financial Plan – Loan Amortization Schedule II

Loan amortization schedule II


Total loan RM22,500
Interest rate 4%
Payback Years 5 years

Annual interest = 4%*22500 900


Annual principal =225000/5 4,500
Total annual repayment 5,400
Total monthly repayment = 5,400/12 450
Financial Plan – Loan Amortization Schedule II

Year Interest Principal Total Current


repayment Balance (RM)
0 22,500
1 900 4,500 5,400 18,000
2 900 4,500 5,400 13,500
3 900 4,500 5,400 9,000
4 900 4,500 5,400 4,500
5 900 4,500 5,400 -
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 Accumulated Book value
depreciation depreciation
0 25,000
1 2,429 2,429 22,571
2 2,429 4,858 20,142
3 2,429 7,287 17,713
4 2,429 9,716 15,284
5 2,429 12,145 12,855
6 2,429 14,574 10,426
7 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 Book value
depreciation depreciation
0 28,000
1 3,667 3,667 24,333
2 3,667 7,334 20,666
3 3,667 11,001 16,999
4 3,667 14,668 13,332
5 3,667 18,335 9,665
6 3,667 22,002 5,998 (><6,000)
Annual depreciation =28,000-6,000/6 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 Owner’s Equity Statement /Statement of Financial
Position -This statement summarizes the changes in
owner’s equity.
o Balance Sheet/ Statement of Financial Position-A
Balance Sheet shows company’s financial position of
assets, liabilities and owner’s 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.
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 XXX


Gross Profit XXX
(Less) Salaries XXX
Rental XXX
Advertising XXX
Water & electricity XXX
Depreciation XXX
Miscellaneous XXX XXX

equals Net profit (loss) 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.
 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 (con’t)
 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 RM
Sales revenue 90,000*
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

Net profit 6,655


Balance Sheet
 The balance sheet provides a snapshot of the firm’s
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 assets—consisting primarily of cash, marketable
securities, accounts receivable, inventories, and prepaid
expenses.
2. Fixed or long-term assets—comprising equipment,
buildings, and land.
3. Other assets—all assets not otherwise included in the
firm’s current assets or fixed assets, such as patents,
long-term investments in securities, and goodwill.
Balance Sheet (con’t)
 The liabilities and owners’ equity indicate
how those resources are financed.
1. The debt consists of such sources as credit
extended from suppliers or a loan from a
bank.
2. The equity includes the stockholders’
investment 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

Asset Liabilities and Owner’s Equity

Current Assets Current Liabilities


Cash Accounts payable

Accounts receivable Notes payable


Supplies
Prepaid rent Accruals

Unearned revenue
Fixed Assets
Land
Non-current liabilities
Building Loan
Less: accumulated depreciation
Machinery Total Liabilities
Owner’s equity
Total Assets Total Liabilities and Owner’s Equity
Financial Statement:
Pro Forma Balance Sheet
Aisha Beauty Salon Enterprise
Pro Forma Balance sheet
As at 31 December 2009
ASET
Current asset
Finished inventory 2,000
Cash 25,450
Total current asset 27,450
Fixed asset
Machines/equipment/others 28,000
- accumulated depreciation 3,667
Book value of machineries/others 24,333
Car 25,000
- accumulated depreciation : car 2,429
Book value for car 22,571
Total fixed asset 45,811
TOTAL ASSET 74,354
Financial Statement:
Pro Forma Balance Sheet
Aisha Beauty Salon Enterprise
Pro Forma Balance sheet
As at 31 December 2009
LIABILITY
Current liability
Account payable 3,699
Long term liability
Bank loan 36,000
Hire purchase 18,000
Total Long Term liability 54,000
TOTAL LIABILITY 56,607
OWNER'S EQUITY
Beginning capital 10,000
Net profit 6,655
ENDING CAPITAL 16,655
TOTAL LIABILITY AND EQUITY 74,354
Financial Statement:
Pro Forma Cash Flow Statement

Month ITEMS 0 1 12 TOTAL

A CASH INFLOW

TOTAL CASH INFLOW 10,000 21,400 32,138 100,000

B CASH OUTFLOW -

TOTAL CASH OUTFLOW 32,600 5,800 5,300 98,900

C SURPLUS/DEFICIT (22,600) 15,600 26,838 26,838

D Loan 43,500

E Short term financing - - - -

F ENDING CASH BALANCE 18,400 14,213 25,450 25,450