Financial Plan for The Track Table - Essay Example

?Financial Plan Table of Contents Financial Plan 3 Introduction 3 Projected Sales, Expenditure and Capital Projection 3 Income ment 5 Revenue Projection 7 Cash Flow Statement 7 Balance Sheet 8 Reference 10 Financial Plan Introduction In the process of developing a new business, the financial planning is the most crucial area that indicates the future viability and attractiveness. The Track Table must focus on developing financial statement to attract a number of investors and sources of loans (Pinson, p.4). In this process, for preparing the projected the financial statement, the sales estimation for the first two years have been forecasted based on the market and competitive analysis and projected demand. Primarily The Track Table will seek for the financial stability rather than profitability, and the major task in financial stability is to produce and sales products above the breakeven even points meeting its all expenses and financial duties. The projected financial statements for The Track Table include income statement, cash flow and balance sheet for the next two operating years. Projected Sales, Expenditure and Capital Projection For preparing three major financial statements i.e. Income statement, cash flow and balance sheet necessary areas like sales projection, estimated cost, required capital and other investments needed to be determined properly. The following table depicts estimated cost for capital investment required for manufacturing unit and office equipments. Capital Investment for manufacturing Unit and Office Software Development Cost $25,000.00 Computers and printer $1,250.00 Furniture and Fittings $1,000.00 Machineries in manufacturing plants $300,000.00 Other capital Expenditures $1,000.00 TOTAL Capital Expenditure $328,250.00 Major capital investment includes software development cost for tablet PC and other machineries like computer and tools. For the offices, necessary furniture will also be required that will incur certain amount of cost. Besides, there will be certain fixed overhead that will be incurred in every month. The costs of necessary fixed overheads are given in the table for first two years. Fixed Overheads Items Year 1 Monthly Year 2 Monthly Salaries: employees $85,000 $7,083 $211,000 $17,583 RENT $1,500 $125 $1,500 $125 Electricity $360 $30 $360 $30 Insurance $500 $42 $500 $42 Administrative Cost $900 $75 $900 $75 Depreciation $15,000 $1,250 $12,000 $1,000 Promotional and Marketing Cost $103,000 $8,583 $67,000 $5,583 TOTAL $206,260 $17,188 $293,260 $24,438 Based on above sales projection and cost estimation, total initial start up cost for the first operating year has been estimated at $627510 and this break ups for this initial cost is given below. Initial Start up Cost for first year of Operation TOTAL Capital Expenditure $328,250 Cost Of Goods Sold for the first Year $20,800 Fixed Overheads Expenses for First Year $206,260 Liquid Cash $72,200 Start Up Cost Total for the first years $627,510 Therefore, based on the above required initial cost for the business, the necessary capital will be obtained from the shareholders’ contributions and from the long and short term loans. The following table presents source and cost of different capitals. Source of Capital Investment Required For first years $627,510 Capital from Shareholders $313,755 Short Term Loan @ 8% $62,751 Capital From Long term Loan @ 10% $251,004 Income Statement After determining the estimated cost for the different activities like operations, manufacturing, development etc, the projected income statement can be prepared considering estimated sales. Monthly sales forecast has been estimated for the first two years, and the projected income statements have developed on monthly basis for the first years. The following table shows income statement for the first year. Income Statement for First Year   Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Yearly Sales Units 40 45 50 53 60 70 75 77 80 90 92 100 832 Revenue $2,000 $2,250 $2,500 $2,650 3,000 $3,500 $3,750 $3,850 $4,000 $4,500 $4,600 $5,000 $41,600 Cost of Goods Sold $500 $563 $625 $663 $750 $875 $938 $963 $1,000 $1,125 $1,150 $1,250 $10,400 Gross Profit $1,500 $1,688 $1,875 $1,988 $2,250 $2,625 $2,813 $2,888 $3,000 $3,375 $3,450 $3,750 $31,200 Fixed Overhead $17,188 $17,188 $17,188 $17,188 $17,188 $17,188 $17,188 $17,188 $17,188 $17,188 $17,188 $17,188 $206,256 EBIT $(15,688) $(15,501) $(15,313) $(15,201) $(14,938) $(14,563) $(14,376) $(14,301) $(14,188) $(13,813) $(13,738) $(13,438) $(175,056) Interest $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $30,276 EBT $(18,211) $(18,024) $(17,836) $(17,724) $(17,461) $(17,086) $(16,899) $(16,824) $(16,711) $(16,336) $(16,261) $(15,961) $(205,332) In the first, year of operation, the sales will be expected to very low, and on the other hand, the fixed expenses will higher due to high promotional and marketing, and depreciations. Another reason for the low sales in first year is that no sales staffs have been recruited. In the second, with the help of two sales staff, The Track Tablet is expected to increase achieve the sales from 832 to 4870 units. The following table presents the income statement for the second year. Income Statement for Second Year   Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Yearly Sales Units 150 200 250 300 350 400 450 500 520 500 600 650 4870 Revenue $8,250 $11,000 $13,750 $16,500 $19,250 $22,000 $24,750 $27,500 $28,600 $27,500 $33,000 $35,750 $267,850 Cost of Goods Sold $2,063 $2,750 $3,438 $4,125 $4,813 $5,500 $6,188 $6,875 $7,150 $6,875 $8,250 $8,938 $66,963 Gross Profit $6,188 $8,250 $10,313 $12,375 $14,438 $16,500 $18,563 $20,625 $21,450 $20,625 $24,750 $26,813 $200,888 Fixed Overhead $24,438 $24,438 $24,438 $24,438 $24,438 $24,438 $24,438 $24,438 $24,438 $24,438 $24,438 $24,438 $293,256 EBIT $(18,251) $(16,188) $(14,126) $(12,063) $(10,001) $(7,938) $(5,876) $(3,813) $(2,988) $(3,813) $312 $2,375 $(92,369) Interest $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $2,523 $30,276 EBT $(20,774) $(18,711) $(16,649) $(14,586) $(12,524) $(10,461) $(8,399) $(6,336) $(5,511) $(6,336) $(2,211) $(149) $(122,645) As per the above table of income statement for the second years, with increasing sales and the loss to company has been reduced significantly i.e. from -$205332 to -$122645. With better sales The Track Tablet will soon achieve positive profitability by maintaining its financial stability. Revenue Projection The revenue projections for the first two operating years are already given in the income statement. In the first year, the revenue will be very low and it will increase significantly with the help of 2 sales staffs. In the following years of operations, The Track Tablet plans to recruit more sales staff i.e. 10, 15 and 30 sales staffs in third, fourth and fifth years respectively. Hence, the sales will expected to surpass the breakeven point. Currently, the breakeven unit is nearly [Fixed Cost/(Sales Price-Variable Cost)=$206256/$50-$25= 8251units, and The Track Tablet will be expected to achieve this sales in third year of operation with the help of 10 sales staff. Cash Flow Statement The cash flow statement indicates the financial activities affecting the cash flow of a company and it is prepared based on the three major cash related activities i.e. cash flow from operating, financing and operations. The flowing table shows the projected cash flow statement of The Track Tablet for its first two operational years. Cash Flow Statement for Two Years   Year 1 Year 2 Cash Flow From Operating Activities     Net Earning $(205,332) $(122,645) Depreciation $15,000 $12,000 Net Cash Flow From Operating $(220,332) $(134,645) Cash Flow from Investment     Cash used for Investing Activities $(328,250) $- Impairment Cost $- $(5,000) Net Cash Flow From Investment $(328,250) $(5,000) Cash Flow From Financing Activities     Capital From Share Holder $313,755 $- Long Term loan $251,004 $- Short Term Loan $62,751 $- Interest on Short Term $(5,020) $(5,020) Interest On long term $(25,100) $(25,100) Net Cash Flow From Finance $657,630 $(30,120) Net Cash Flow at Year End $109,048 $(169,765) Cash Year Begin $- $109,048 Net Cash Available Cash Flow $109,048 $(278,813) As the projected net income statements, earnings will be negative in first two years of operations due to lower sales and higher cost for investments and for higher operating cash outflows, net cash flow will negative in the second operating year. The cash flow in first year will be positive sue to higher cash inflow from financing activities. Gradually, with increasing earnings in the following years, The Track Tablet will be able to maintain a positive cash inflows but it will take two to three years to achieve this point. Balance Sheet Balance sheet shows the financial stability of a company at specific period of time showing net position of assets and liabilities. The following table represents the balance sheet for the first two operating years. Balance Sheet for First Two Years   Year 1 Year 2 ASSETS Computer and Printers $1,250.00 $1,100.00 Plant and Machinery $300,000.00 $285,850.00 Furniture and Fixture $1,000.00 $800.00 Total Fixed Asset $302,250.00 $287,750.00 Intangible Asset (software) $25,000.00 $24,500.00 CURRENT ASSETS Cash $109,048.08 $0 Total Assets $436,298.08 $312,250.00 LIABILITIES CURRENT LIABILITIES Short Term Loan $62,751.00 $55,000.00 Accrued Expenses $14,120.08 $14,467.50 Total Current Liabilities $76,871.08 $69,467.50 Long Term Liabilities LONG TERM loan $251,004.00 $257,004.00   FINANCED BY: Shareholders' Equity $313,755.00 $108,423.00 Retained Earnings $(205,332.00) $(122,644.50) Total Liabilities $436,298.08 $312,250.00 Due to higher risk in the initial years, The Track Tablet will be produced limited products as per the sales forecast and hence, there will no inventory or related cost. Due to negative earning in the first two years, shareholders equity will be highly affected that will lead to reduce company’s overall net worth. As soon as, the company will start to earn positive earnings, shareholders will be appreciated. Reference Pinson, L. Anatomy of a business plan: the step-by-step guide to building your business and securing your company's future. 7th Edition. Aka Associates. 2008. Read More