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Topic 13 Finance For Small Business
Topic 13 Finance For Small Business
Mahasiswa mampu membuat Cash Flow, menyusun proyeksi laporan keuangan, serta
menganalisa kelayakan keuangan sebuah Business Plan.
A. Financial Capital
Source of capital is a source of funds that can be used on business. The selection of the
source of funds aims to provide the combination of the lowest cost, and does not cause
liquidity difficulties for the company and investors. Sources of company capital can be
grouped as follows:
1. Proprietary's Stake
Proprietary's stake is the source of funds invested by business owners. The companies
(Private Company) that have not to go public then can only obtain capital from the owners
and limited funds. Therefore, the companies that want to raise large funds they may choose
to go public or be a Listed Company / Publicly-traded. The Listed Company / Publicly-
traded in Indonesia have marked by “Tbk” behind the company's name, example: PT.
BANK RAKYAT INDONESIA TBK. Some sources of funds are grouped in proprietary's
stake is as follows:
• Profit reserves
• Retained earning
• Donated capital
• Grant funds
2. Loan Capital
The source of loan capital is the source of funds derived from non-operational
activities such as debt to the creditor. Some of these loan sources come from legal of
financial institutions and informal financial institutions. Usually formal financial institutions
serve businesses with large scale. Small businesses such as SMEs are served by informal
financial institutions. Loan capital consists of:
B. Allocation of Capital
1. Type of Cost
In business, cost is usually a monetary valuation of (1) effort, (2) material, (3) resources,
(4) time and utilities consumed, (5) risks incurred, and (6) opportunity forgone in
production and delivery of a good or service. All expenses are costs, but not all costs
(such as those incurred in acquisition of an income-generating asset) are expenses.
1) Based on Expenditure
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c. General and administrative expense is costs incurred for production and
marketing activities. For examples are the cost of the employee's salary, the
cost of photocopy, the cost of office stationery.
2. Pre-operation
Some aspects to be considered for an employer in order to survive in the market is the
business market and marketing, technical-production, management, legal, economic,
social and financial. In this part we will discuss the financial aspects that are the result of
the planning corporate strategy because it determines the funds needed by the company
and an investment decision (external funding).
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For the company, especially the newly established will certainly have a lot of costs to be
spent before the business is run so it is important to arrange the allocation of funds. If
that happens, the company must decide and even create a cost list based on the level of
its needs.
(in Rupiah)
Description Sum of Funding
Fixed Assets
Building
Machine and equipment
Office Supllies
.................................
Total Fixed Assets .....................
Intangible Assets
Pre-operating Cost
...............................
Total Investment Cost .....................
Working Capital .....................
Total Project Cost .....................
After determining the Costs required, the financial manager will determine the source of
funds used to meet such costs such as using his own capital or loan. The statement of
source and application of fund is necessary as it will affect the cash flow statement. The
managers need to pay attention to the source of funds from the loan because it affects the
cash flow out so you need to know how long and the amount of the loan as it will be a
deduction of cash.
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3. Operational
Working capital for new investment business refers to the overall assets that will be used
for operations other than the expenditure of funds for fixed assets. The bigger the
planned amount of sales and production the greater the working capital needed. The cost
used for working capital or company operations is the amount of funds used to run the
business activities that are running. Operational costs (working capital) include purchase
of raw materials, purchase of supplies, employee salaries, wages, electricity costs,
telephone costs, water, maintenance costs, taxes, insurance premiums, marketing costs,
and other expenses
A. Cost of Production
B. Operating Expenses
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8. .................................................. ......................
(..................x Rp........................)
The financial aspect of the business proposal should be able to demonstrate the potential
of the funds, external funding needs, business feasibility calculations, including the three
financial performance reports: balance sheet, profit-loss, and cash flow. The estimated
financial statements can provide information about projections of business results
obtained from the business to be run.
The projected income statement describes the estimated financial statements in the next
year and is the result of operations within a certain period. These financial statements
reflect the types and sources of income and the amount of income as well as the types of
costs and the amount of costs projected to be incurred.
A. Sales
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D. Operating Expenses
Assets
A. Current Assets
1. Cash
2. Account receivable
3. Inventories
Total Current Assets ................ ................. ................. .................
B. Fixed Assets
1. Land
2. Building
3. Machine and equipment
4. Office supplies
5. Vehicle
6. ............................................
Total Fixed Assets ................ ................. ................. .................
Accumulated depreciation
Book Value Fixed Assets
C. Intangible Assets:
Accumulated amortization
Book Value Intangible Assets ................ ................. ................. .................
Total Assets (A+B+C) ................ ................. ................. .................
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Investment credit
..............................................
Total Non-current Liabilities ................ ................. ................. .................
C. Equity
Equity
Retained earnings last year
Retained earnings for the year
Total Equity ................ ................. ................. .................
Total Liability and Equity ................. .................. ................. ................
(A+B+C)
Forecasting of Cash flow statement shows all aspects related to activities, either directly
or indirectly affecting cash. Projected cash statements should be prepared based on the
cash concept during the reporting period.
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D. Bank Borrowings
1. Installment of investment credit
2. Installment of working capital
3. ...............................................
Total Bank Borrowings ................. ................. .................. ..................
Cash at the end of period ................. .................. .................. ..................
Assumptions:
Time value of money (TVM) is the idea that money available at the present time is
worth more than the same amount in the future due to its potential earning capacity. This
core principle of finance holds that, provided money can earn interest, any amount of money
is worth more the sooner it is received.
The future value (FV) is the value of a current asset at a specified date in the future
based on an assumed rate of growth over time. The FV calculation allows investors to
predict, with varying degrees of accuracy, the amount of profit that can be generated by
different investments. The amount of growth generated by holding a given amount in cash
will likely be different than if that same amount were invested in stocks, so the FV equation
is used to compare multiple options.
Present value (PV) is the current worth of a future sum of money or stream of cash
flows given a specified rate of return. Future cash flows are discounted at the discount rate,
and the higher the discount rate, the lower the present value of the future cash flows.
Determining the appropriate discount rate is the key to properly valuing future cash flows,
whether they be earnings or obligations.
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The interest is paid or semi-annual compounding per six months,
2×t
⎛ rate of return ⎞
FV = present value × ⎜1 + ⎟
⎝ 2 ⎠
The interest rate is paid quarterly compounding or four times in one year then
4×t
⎛ rate of return ⎞
FV = present value × ⎜1 + ⎟
⎝ 4 ⎠
2. Present Value
Calculate of estimation of money must be invested now in order to get the desired funds
in the future period, then how to assess the money today is:
future value
PV =
(1× rate of return)t
Total Investment
Pay Back Period = --------------------------------------- x 1 year
Net Income + Depreciation
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Total Investment
Pay Back Period = --------------------------- x 1 year
Cash In Flow
Payback Period method is a very simple measuring tool, easy to understand and serves as
the earliest stage for the assessment of an investment. This model is commonly used for
the selection of investment alternatives that have high risk, because the capital that has
been invested should be immediately acceptable as soon as possible. The main
disadvantages of this PBP method are:
Example:
Company plans to invest. Investment manager gives two project alternative. Alternative
A have terminal investment Rp 1000.000, - and expected to get profit or return of profit
Rp 250.000, - per year with 10 year period. Investment B requires an investment cost of
Rp 200,000, - and will not get a profit per year, the company will get its fund of Rp
100,000, - annually which is accumulated in the next 20 years. Which will provide more
benefits for company?
Based on the above calculation, it can be concluded that PBP investment A is longer than
B investment. In addition, rate of returns company, Project A give Rp.1500.000, -, where
the company spends Rp.1000.000 as the cost of capital to be returned during 4 years of
investment while Rp. 250,000 in the fifth to the tenth year is a return on investment.
While Project B will generate incoming cash plus capital cost of Rp.1.8 million, - which
will be accepted by the company at the end of the 20th year. Which investment is
interesting to you? (discuss with your group)
- C = capital
C = proceed
a. If NPV = 0 (zero), then the return on investment will be equal to the interest rate
used in the analysis, or in other words business is not profitable or loss (breakeven).
b. If NPV = - (negative), then the investment is a loss or the result (return) below the
interest rate used.
c. If NPV = + (positive), then the investment is in return or the result (return) exceeds
the interest rate used.
Example:
Project A Project B
At the beginning Rp. 1.000.000,- Rp.200.000,-
investment
Year Operational Cash Inflow
1 Rp. 250.000,- Rp. 100.000,-
2 Rp. 250.000,- Rp. 100.000,-
3 Rp. 250.000,- Rp. 100.000,-
4 Rp. 250.000,- Rp. 100.000,-
5 Rp. 250.000,- Rp. 100.000,-
The Company has a 10% capital cost, then how NPV is it?
Answer:
CF 155,230.33 62,092.13
(1 + r ) n 155,230.33 62,092.13
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155,230.33 62,092.13
155,230.33 62,092.13
(155,230.33) (62,092.13)
By Excel
A B C
1 Project A Project B
At the beginning
2 1000.000 200.000
investment
4 1 250,000.00 100,000.00
5 2 250,000.00 100,000.00
6 3 250,000.00 100,000.00
7 4 250,000.00 100,000.00
8 5 250,000.00 100,000.00
11 NPV =NPV(10%,B4:B8)-B3
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3. Profitability Index (PI)
Profitability Index is the ratio between the present value of cash inflows to the present
value of outflow cash flow. This ratio uses the present value as well as the Net Present
Value, but the Profitability Index uses the index unit instead of the money value.
PV of Benefit
Profitability Index = ---------------------------
PV of Capital Cost
The criteria for valuation of investment by using Profitability Index are as follows:
Example:
Based on the above example and discussion of NPV, how much the PI of each project?
Answer:
1 Project A Project B
At the
2 beginning 1,000,000.00 200,000.00
investment
4 1 250,000.00 100,000.00
5 2 250,000.00 100,000.00
6 3 250,000.00 100,000.00
7 4 250,000.00 100,000.00
8 5 250,000.00 100,000.00
9 NPV ($52,303.31) $179,078.68
10 Proyek yang dipilih Proyek B
11 NPV
12 PI 1.25 2.5
13 IP=SUM(B4:B8) /B2
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4. Internal Rate of Return (IRR)
Internal rate of return (IRR) is the interest rate at which the net present value of all the
cash flows (both positive and negative) from a project or investment equal zero. Internal
rate of return is used to evaluate the attractiveness of a project or investment. The
indicator used as a reference to the Internal Rate of Return is the prevailing bank lending
rate, or deposit interest rate.
For Example:
Based on the sample problem in the above NPV discussion, how much IRR of each
project?
Answer:
1 Proyek A Proyek B
2 At the -1,000,000.00 -200,000.00
3 1
beginning 250,000.00 100,000.00
4 2
investment 250,000.00 100,000.00
5 3 250,000.00 100,000.00
6 4 250,000.00 100,000.00
7 5 250,000.00 100,000.00
8 NPV ($52,303.31) $179,078.68
9 NPV
10 PI -1.25 -2.5
11 IRR 7.93% 41.04%
12 Proyek yang dipilih Proyek B
13 IRR =IRR(B3:B6)
14 Proyek yang dipilih =IF(C11>D11,C1,D1)
E. Profit Analysis
Profit analysis is aimed at setting profit by adjusting price and sales volume received
by the market by considering competitors. Analyze this advantage should always be done at
a certain period.
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1. Break Even Point (BEP)
Break Even Point analysis is a method that connects between cost, profit, and sales /
production volume. This analysis is conducted to determine the minimum level of profit
that must be achieved and at that level the company does not experience any profit or
loss.
In the Break Even Point analysis, the cost factors are divided into:
ü Semi-variable costs, ie costs that will change in number with changes in sales volume
or production, but not proportionately. This cost will be partially charged to the fixed
cost item, and some will be charged on variable cost items
ü Variable costs, are costs that will change in proportion to changes in sales volume or
production
ü Fixed costs are costs that will not change with changes in sales volume or production.
Fixed Cost
BEP = --------------------------------------------- x 100%
Sales – Variable Cost
Fixed Cost
BEP = --------------------------------------
| |
Variable Cost
1 – -----------------------
Sales
Example:
Fixed Cost
BEP = --------------------------------------------- x 100%
Sales – Variable Cost
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300.000
BEP = --------------------------------------------- x 100%
1.00.0 – 400.000
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Hence the value of BEP in units is as many as 200 units
Example:
1. The investment used for a business is Rp. 800,000,000 and the net profit earned is Rp.
20.000.000 per month. Calculate how the Return on Investment on the investment!
Answer:
Then the value of ROI per month 2.5% or 30% per year
Calculate what the total value of ROI for the project is!
Answer:
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Then the overall ROI value is 70,37%
Exercise
1 10.000 11.000
2 10.000 10.000
3 10.000 9.000
4 10.000 8.000
a. Calculate Payback Period (PP).
b. Calculate the net present value (NPV) of each Project
c. Calculate the internal rate of return (IRR) of each Project
d. Describe the results Based on the assessment of the three models and decide
which projects to choose.
3. PT ABC uses a maximum PP standard of 6 years and chooses two alternative
projects. The Hydrogen project with a first investment of Rp 25,000,000, while the
Helium project requires 35,000,000. Both projects are estimated the company will
get cash inflow per year as follows.
YEAR EXPECTED CASH
HYDROGEN
INFLOWS HEL
1 6000 7000
2 6000 7000
3 8000 8000
4 4000 5000
5 3500 5000
6 2000 4000
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4. PT DEF gets the investment offer in its initial investment is 15 million and it is
estimated that the investment period for 10 years cash flow which will be accepted
by the company is as follows:
5. A convection company produces t-shirts and has cost data and production plans as
follows:
a. Fixed costs:
• employee salary + owner =
Rp.35,000,000
• • health insurance fee =
Rp.10,000,000
• office building rental fee = Rp.15,000,000
• factory rental fee = Rp.20,000,000
b. Variable costs:
• raw material costs = Rp.35,000
• direct labor costs = Rp.25,000
• Other fees = Rp.15,000
c. Selling Price per Unit = Rp.95,000.
Calculate what the total value of ROI for the project is!
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DAFTAR PUSTAKA
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LAMPIRAN
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