Financial Reports Are Very Important - Business Plan Example

Business Simulation Student inserts His/Her Name Here Lecturer Inserts Student Grade 6th March, 2011 Executive summary ...............................................................................................3 Business description...............................................................................................4 Marketing plan.......................................................................................................5 Operation plan........................................................................................................7 Organization plan...................................................................................................10 Financial plan...........................................................................................................12 Reference..................................................................................................................14 Appendix ..................................................................................................................15 Executive summary In the world of business, financial reports are very important as they act as a marker on how successful or failure has the company acted over the years. These reports are important whenever a business is seeking funding, takeover or merging with other enterprises. In my case I am filling this report seeking for finances from a local bank based here in Melbourne. The enterprise venture into a technology business which deal with supply of both software and hardware products and the business will be base in Melbourne with shops located within several regions in Australia. My company is known as Calpiri technology enterprise. Business description The kind of business that my team and I ran operate is a technological and related distributing company and we stock goods from major brands such as Dell and compaq. The company will operate shops for a period of 2 years and will expand and open other shops within the Melbourne area. For the 2 year period the company intend to operate at profit of AU$ 827, 512 with the best months of business being the month of September. The goods sales in September will be attributed to a lot of social activities in Australia during this period. The company will run a lot of sales campaigns and promotions to popularise the company’s products. The company will for a long time trying to tap into other potential markets in Australia but it has been held back by lack of enough finances to do so. As a result, Calpiri is intending to borrow a loan of approximately AU$ 3 to 3.5 million to finance its expansion programs. Marketing plan Calpiri technological distributor is in good and healthy financial position, the company in the period ended 2010 experienced exponential growth compared to the previous years. In the past one year, the company’s sales jumped from AU$ 1.44 million to the current AU$ 2.12 million representing an increase of 47.2% in sales turnover. Over the same period, business expenses increased by around 8% and affecting the company’s profits. The total operating expenses increased from AU$ 1.19 million to AU$ 1.294 million, the company has been in operating for a period of four years and during this time, assets and employees numbers have increased. The company’s assets as at the end of 2010, stood at AU$ 5.94 million with the company currently operating six stores in Australia, this is as shown in the appendix. The major assets of the company include 3 stores which had been fully paid as the 2010 financial year was commencing, while other assets include cash at bank, investments and unsold goods. Out of the six stores operated by Calpiri, three have already been acquired with the remaining three being paid out through a debt acquisition plan (Hanke, 2008). Liabilities at Calpiri include debts owed, unpaid sales outlets (stores), tax liability and many other liabilities. In the year 2010, Calpiri has a total liabilities amounting to AU$ 3.61 million. Over the next coming year, the liabilities are set to increase due to loans which we at Calpiri intend to borrow from banks or other investors. The company intends to reduce its liabilities which to smaller margins, in the coming financial year, Calpiri intends to pay all debts owed to creditors to remain with a healthier balance sheet. The loan Calpiri intends to borrow from the bank will be used in opening new stores as a strategy of capturing new markets and help the firm reduce the volumes of unsold stock. This will in turn help Calpiri reduce its liabilities of unpaid stock and pay out to our creditors. The acquisition of three other stores is likely to increase Calpiri’s liabilities due to increased operational costs in maintaining the stores and for paying the additional staff who will be employed at the stores. Calpiri plan of seeking financial assistance is based on the fact that the company’s equity increased and therefore the company has more access to liquid cash and by reducing dividend payout the company is in a position to pay for funds requested. Calpiri’s profit and loss account demonstrate the major expenses in running the business included paying salaries for the workers, maintenance costs for the stores and miscellaneous expenses. Other costs included depreciation charges on property and goods which affected the profit and loss account. The sales turnover for Calpiri for the year 2010 amounted to AU$ 2.12 million with the third quarter of the year contributing close to 30% of all sales. In the next coming moths, Calpiri’s plan of opening other stores would contribute to increased sales and our predictions is that sales could grow to a level of around AU$ 3.5 million. From the profit and loss account as seen in table 1, salaries and miscellaneous cost led in expenditure and the loan borrowed from the bank would help in reducing miscellaneous costs such as transport costs and online advertising. As a result of securing external finances the company will be able to open a website and reduce on advertising costs while the company could acquire some vehicles to be used in transport and generally reduce expenses and increase profits (Wood, 2001). Operation plan Business planning process In the process of running a business, several strategies have to be deployed in making decisions, attracting customers, cutting on costs and other major decisions. In the development of my business, we work as a team of employees out to make profits. The company usually faces challenges such as hiring new employees and managing employee’s work rate. I would like to express that the exercise of building team requires tolerance and expertise (Williams, 2007). In Calpiri, decisions are made after extensive consultations and a final decision is undertaken by me being in position of the owner. Major challenges that the company faced and overcame included identifying target market, locations of its stores or sale points, staff remuneration. As it concerns the issue of identifying target market and location of sale points, we agreed as staff to mainly target clients between the ages of 8 to 45 years. At Calpiri, we do work as a team and in the business planning process sacrifices are made to ensure that the business strategies and plans are followed to completion. In the running of a small business like Calpiri several plans are made but most of them should be geared towards expanding the business to a large enterprise in the future (Dlabay, 2008). Calpiri’s strategy was to grow to become the Australian leading distributor of sports equipments and sportswear. As a result of this, the company focussed mainly on growth as opposed to profits since growth will ensure that the company attract loyal customers who end up being repeat customers. The company also focussed its goals based on long term sought achievements although as a team we at Calpiri agreed to peruse through our strategy every year and change the strategy if does not work for the company in the long term. Decision making process between employees at Calpiri is crucial and at times we have to make negotiations on pertinent issues that affect the business. On the issue of seeking financial assistance (loan) from the bank, the team at Calpiri decided to borrow funds as a strategy of expanding the business (Williams, 2007). The loan that would be borrowed from the bank would be paid through retained earnings of profits and the team decided this decision was the best way to accelerate Calpiri’s growth. Calpiri needs to grow faster for the company to capture the market before competition increases to unprecedented levels. Negotiations within a company are healthy because they help in scrutinizing all issues from different view points and thus when a decision is made, one is sure that the decision has been well taken (Madura, 2006). When the team fail to agree on a decision, the decision is decided by me being the owner of the business. In the operation of a business, plans and strategies are laid out as part of the business mission and visions. In order for a company to achieve success as it is always stated in its mission or vision, the company’s strategies have to be engineered to cater for current and future plans that the business needs to undertake. Calpiri as a company usually undertakes business forecasting as a measure of assessing its position in the future. For a business to achieve its required goals and objectives within an agreed time frame, management and it employees have to work hard and round the clock to ensure that organizational goals and objectives are met. For a goal or objective to be met teamwork spirit must be present and the team has to decide on its own how to build itself. Calpiri although being a small business has made plans in which the company will venture into untapped markets and regions within Australia. This undertaking will open up the business to a lot of competition making the venture risky; though as experienced earlier risk sometimes pays well for Calpiri as the strategy was used in attracting loyal customers (Dlabay, 2008). In order to grow revenues, we at Calpiri have decided to spend more money in marketing campaigns for customers to buy our goods. For instance, this is usually undertaken during sports events or rallies like the Australian Open of the Adelaide Rugby World Series. Running a small business like Calpiri requires a lot of sacrifice in terms of time, resources and dedication. It is through the running of Calpiri that I have been able to learn and understand skills like balancing books of accounts, filing tax returns and reconciling business and bank records. Most of the employees have also sacrificed their time and resources since 80% of Calpiri’s employees started working at the firm. The exercise of running a business most of the times requires one to be skilled or have experience in one field or another. In the case of Calpiri, from the period when the business was stated to the level it now at, I and the team working there have learnt a lot. Experiences such as selling, balancing books of accounts and other business transactions are usually learnt only through experience (Madura, 2006). Running a business requires sacrifice of personal time since most of the time is spent building the business but the experience is usually rewarding especially when the business grows. Organization plan The company’s recent growth figures and sales figures are encouraging and basing from the financial results out we expect the company to grow more in the coming years. Based on the financial results in the past, the company expects to grow more in the coming years. In the past one year sales at Calpiri soared by margins of 51% helping the business grow and shore up its revenues. Due to the increased nature of business at Calpiri, sales are expected to grow further in the next six months at predictable levels of about 23%. The sales will help Calpiri to grow its revenues and eventually lead to the company offsetting its loan portfolio and growing the company to serve other markets within the Australian region (Williams, 2007). Calpiri’s market presence and the fact that the business has been growing at a steady rate show that the company is in a position to take up more funding in terms of loans in a move aimed at growing the business which will end up soaring profits. According to the financial calculations deduced from the profit and loss account, Calpiri Sports goods distributor has the ability to borrow finances that amount to double its profits. Calpiri sports goods distributor intends to borrow funds amounting to AU$ 3 million and repay the loan within a period of 30 months, this strategy was agreed upon by all stakeholders. Calpiri’s strategy was to build the company over a long term period and that the reason why the company is ready and committed to borrow a long term loan from our bankers (Wood, 2001). Calpiri’s plans of borrowing a loan are sound owing to reasons which include the fact that the company’s strategies are long term based. Basing on the profit and loss account which ahs a direct effect on the company’s balance sheet, the worth of assets owned by Calpiri is quite sizeable and in case Calpiri is in no position to offset the loan, its assets could be auctioned to recover the loan borrowed. Financial plan Financial restructuring When a company borrows a loan necessary steps and procedures have to be followed. We at Calpiri understand that taking a loan is a risk and necessary plans have to be made on how to utilise and repay the loans within the agreed time frame. Calpiri’s quest for additional funding is an idea that was carefully thought out and decided upon by all stakeholders. As a result, the company will have to restructure it financial undertaking once the loan request has been approved. As a requirement for borrowing the loan, Calpiri will attach it store outlets as collateral to the loan to be borrowed from the financial institution (Hanke, 2008). Although the loan amount borrowed amounting to AU$ 3 million, which is less compared to the worth of the stores which amount to AU$ 2.4 million as indicted by Table 2 shown in the appendix section. In addition to the stores being offered as collateral, Calpiri has additionally attached its investments as collateral for loan being borrowed. Calpiri has been adhering to the principles of fair trade practices and it has been able to meet its tax payments as stipulated by the law. In addition to practising fair business, Calpiri has taken out insurance policies for its stores and employees and therefore the bank need no to be worried in case of accidents occurring on stores surrendered as collateral for the bank loan. As it concerns debts, Calpiri has been servicing debts owed to it by other businesses and Calpiri’s ability to pay out its debts is a testament that the company will pay out its loan portfolio. As a director of Calpiri, our commitment as stakeholders to the business is so strong tracing its route to the inception of the firm to the level of growth we envisage for the company (Williams, 2007). In the case Calpiri secures a loan, we as stakeholders will be able to fulfil the company’s vision and missions. Individual Reflective Report In the running of a business, several factors have to be considered and one of the most important factors is management. With the help of business reports, one is able to forecast on how the future is going to be. My business reports show that the business has been on an upward trend, however growth has slowed to steady levels recently. Conclusion The process of securing finances for a business involves analysing the current position of the company, its business needs or whether the laid out policies or strategies will be achieved using available resources. Sometimes a company could source for external funds through loans or equity funds in a bid to expand its businesses. Finances sourced externally must be carefully factored and used to ensure that the funds are repaid and that the business benefits form those funds eventually. References Dlabay, L. Burrow J. and Kleindl, B., 2008. Intro to Business. 7th ed. Boston, MA: Cengage Learning. Hanke, J. and Wichern, D., 2008. Business Forecasting. Austin, TX: Pearson/Prentice Hall. Madura, J., 2006. Introduction to business. 4th ed. Chicago, IL: Cengage Learning. Williams, S. and Williams, N., 2007. The profit impact of business intelligence. Washington: Morgan Kaufmann. Wood, G., 2001. Borrowing and Business in Australia. Adelaide: Ayer Publishing. Appendix Figure 1: Graph showing sales turnover for Calpiri Sports Goods distributor during the year 2010. Table 2: Showing Calpiri’s Profit and Loss Account Calpiri Sports Goods Distributor Profit and loss Account for the year 2010 Item Type Amount in AU$ (Australian Dollars) 1.) Total Sales Expenses 1.) Salaries 2.) Store maintenance costs 3.) Depreciation charge on properties 4.) Miscellaneous costs Total Expenses 2,121,826 587,358 276,147 112,320 318,489 Total Expenses = 1,294,314 Profit before tax Total = 827,512 Tax (15%) Total= 124,126 Profit after tax Net profit = AU$ 703,386 Calpiri Sports Goods Distributor Balance Sheet for the year 2010 Assets for year 2010 Amount in AU$ (Australian Dollar) 1.) Cash at bank 2.) Buildings/Properties (retail stores) 3.) Investments 4.) Unsold Goods Total Assets 944,653 2,410, 906 1,345,875 1,245,884 Total Assets= 5, 947,318 Liabilities for Year 2010 Amount in AU$ (Australian Dollar) 1.) Debts Owed 2.) Tax payable 3.) Unpaid Stock 4.) Other liabilities Total Liabilities Equity 1.) Paid Up capital 2.) Retained Earnings 3.) proposed dividends 830,526 124,127 1,456,254 1,201,937 Total liabilities= 3,612,844 1,250,000 732,648 351,826 Total Equity= 2,334,474 Total Liabilities + Equity Total= 5,947,318 Table 1: Showing Calpiri’s Balance sheet for the year 2010 Read More