FINANCIAL PLAN

Dr. Azlin Shafinaz Mohamad Arshad

Malaysian Academy of SME & Entrepreneurship
Development
(MASMED)
 LEARNING OUTCOMES

❑To enable students to prepare relevant

statements for the financial plan.
❑To enable students to develop the skills
of preparing a financial plan.
❑To help students in evaluating the
financial viability of the proposed
business/project.
 INTRODUCTION
❑ A financial plan is a plan that shows the short
and long-term financial requirements in order to
start a new business or project.
❑ It also shows how the requirements are going to
be financed (using internal and external
resources).
❑ A financial plan should also include the
projections of the financial statements such as
the cash flow, profit & loss and balance sheet.
❑ Finally, a financial plan should also include
some financial analysis in order to determine
the viability of the proposed business/project.
 Importance of Financial Plan

❑ To determine the amount of money to

be invested i.e. the project’s cost.
❑ To identify the relevant sources of
finance and the purpose.
❑ To ensure that the initial capital is
sufficient.
❑ To appraise the viability before actual
investment is committed.
❑ As a guideline for implementation.
 Sources of Financial Information
Operational budget
▪ Administrative budget
▪ Marketing budget
▪ Operation budget

Financial budget
▪ Project implementation cost
▪ Sources of finance
▪ Projected cash flow statements
▪ Projected profit & loss statements
▪ Projected balance sheet statements
 Financial Plan Steps
Step 1:
▪ Prepare the project implementation cost’s
schedule.
▪ Prepare table of depreciation for each fixed asset
owned or purchased by the company.

Step 2:
▪ Prepare the source of fund to finance the project’s
cost.
▪ Prepare a loan amortization schedule for term loan.
▪ Prepare hire-purchase repayment schedule if hire-
purchase financing is used.

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

© Entrepreneurship Department, Faculty of Business Management, Universiti Teknologi MARA 2008
Step 3:
▪ Prepare the pro-forma cash-flow statements
(for 3 years).
▪ For year 1 – monthly.
▪ For year 2 and 3 – annually.
Step 4:
▪ Prepare pro-forma trading, profit & loss
statements (for 3 years).
▪ For manufacturing companies, include
manufacturing accounts.
Step 5:
 Prepare pro-forma balance sheet
statements (for 3 years).
Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin
© Entrepreneurship Department, Faculty of Business Management, Universiti Teknologi MARA 2008
 Project Implementation Cost

❑ The total costs (short & long-term costs) needed to

implement the proposed business/project.
❑ Long-term costs refer to capital expenditure to buy
fixed assets (e.g. Land, building, machinery,
equipment, furniture and vehicle).
❑ Short-term costs refer to expenditure to finance day-
to-day operation of the business (e.g. Raw
materials/inventory, wages & salaries, utilities and
other overheads.

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

© Entrepreneurship Department, Faculty of Business Management, Universiti Teknologi MARA 2008
 Elements in Project Cost

Capital Expenditure Other Expenses

▪ Land Pre-operational costs
▪ Building ▪ Business registration & licenses
▪ Renovation ▪ Legal fees
▪ Machinery & Equipment ▪ Road tax & insurance
▪ Furniture & Fixtures ▪ Stamp duties etc.
Deposits
Working Capital ▪ Rental
▪ Administrative ▪ Utilities
▪ Marketing Provision for contingencies
▪ Operation ▪ (2 to 10 % of total cost)

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

© Entrepreneurship Department, Faculty of Business Management, Universiti Teknologi MARA 2008
 Project Implementation Cost
RM RM
Capital Expenditure
Building 45,000
Machinery & Equipment 23,000
Furniture & Fixtures 7,000
Van 25,000
Renovation 4,000 104,000
Working Capital (1 month)
Administrative 8,000
Marketing 1,500
Operation 8,000 17,500
Pre-operational costs 2,700
Deposits 800
Allowance for Contingencies (10%) 12,500
Total cost 137,500
 Sources of Finance
▪ Sources of finance refer to the source where
long-term fund to finance the project cost is
secured. It can be internally or externally
generated.
▪ Elements of source of finance:
▪ Equity Contribution (Cash + Assets)
▪ Term Loan
▪ Hire-Purchase

MEDEC/ETR300 RS
 Sources of Finance

Source RM
Equity Contribution
Cash 27,500
Asset 45,000
Term Loan 45,000
Hire-purchase 20,000
TOTAL 137,500
 Loan Amortization Schedule
Loan amount : RM45,000
Loan period : 5 years
Interest rate : 10%
Method : Reducing balance (annually)
Year Interest Principal Payment Balance
0 0 0 0 45,000
1 4,500 9,000 14,500 36,000
2 3,600 9,000 12,600 27,000
3 2,700 9,000 11,700 18,000
4 1,800 9,000 10,800 9,000
5 900 9,000 9,900 0

MEDEC/ETR300 RS
 Hire-purchase Repayment
Cost of asset : RM25,000
Down payment : RM 5,000
Loan amount : RM20,000
Loan period : 5 years
Interest rate : 8%
Method : Flat (annually)
Year Interest Principal Payment Balance
0 0 0 0 20,000
1 1,600 4,000 5,600 16,000
2 1,600 4,000 5,600 12,000
3 1,600 4,000 5,600 8,000
4 1,600 4,000 5,600 4,000
5 1,600 4,000 5,600 0

MEDEC/ETR300 RS
 Cash-flow Pro-forma Statements

❑ It
is projected statements of cash inflows
and outflows throughout the planned
period.
❑ Itshows the following:
❑Cash inflows
❑Cash outflows
❑Deficit or surplus
❑Cash position (beginning & ending
balances)
MEDEC/ETR300 RS
 Elements in Cash-flow

❖ Cash Inflows
 Equity – cash only
 Term-loan
 Cash sales
 Collection of receivables
 Sales of asset
MEDEC/ETR300 RS
 Elements in Cash-flow

❖ Cash Outflows
 Operational expenditure
 Marketing expenditure
 Administrative expenditure
 Loan repayment
 Hire-purchase repayment
 Purchase of fixed assets
 Pre-operational expenses
 Miscellaneous expenses
MEDEC/ETR300 RS
 Elements in Cash-flow
❖ Cash Surplus or Deficit
 Inflows > Outflows = Surplus
 Inflows < Outflows = Deficit
❖ Cash Position
 Beginning cash + Surplus/(-
Deficit) = Ending cash
Note: The ending cash balance for a
particular month becomes the beginning
balance for the next consecutive month

MEDEC/ETR300 RS
 Example: Cash-flow Pro-forma Statement
Month Pre-Operation Jan Feb Mac Apr May June July Aug Sept. Oct. Nov. Dis. Year 1
A CASH INFLOWS
Beginning cash balance 0 30,000 30,909 31,818 32,727 33,636 34,545 35,454 36,363 37,272 38,181 39,090 39,999 0
Equity - Cash 27,500 27,500
Term-loan 45,000 45,000
Cash sales 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 240,000
B Total Cash Inflows 72,500 50,000 50,909 51,818 52,727 53,636 54,545 55,454 56,363 57,272 58,181 59,090 59,999 312,500
C CASH OUTFLOWS
Operational Expenditure:
Raw materials 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000
Direct labor 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000
Operational overheads 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 24,000
Marketing Expenditure:
Sales commission 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000
Entertainment allowance 500 500 500 500 500 500 500 500 500 500 500 500 6,000
Adminstrative Expenditure:
Salaries & Wages 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 60,000
EPF & SOCSO 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000
Adminstrative overheads 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 24,000
Loan Repayment:
Principal 750 750 750 750 750 750 750 750 750 750 750 750 9,000
Interest 375 375 375 375 375 375 375 375 375 375 375 375 4,500
Hire-purchase repayment:
Down payment 5,000 5,000
Principal 333 333 333 333 333 333 333 333 333 333 333 337 4,000
Interest 133 133 133 133 133 133 133 133 133 133 133 137 1,600
Capital Expenditure:
Machinery & Equipment 23,000 23,000
Furniture & Fixtures 7,000 7,000
Renovation 4,000 4,000
Pre-operational Expenditure 2,700 2,700
Deposits 800 800
D Total Cash Outflows 42,500 19,091 19,091 19,091 19,091 19,091 19,091 19,091 19,091 19,091 19,091 19,091 19,099 271,600
E Cash Surplus/(Deficit) 30,000 30,909 31,818 32,727 33,636 34,545 35,454 36,363 37,272 38,181 39,090 39,999 40,900 40,900
F Ending cash balance 30,000 30,909 31,818 32,727 33,636 34,545 35,454 36,363 37,272 38,181 39,090 39,999 40,900 40,900

MEDEC/ETR300 RS
Example: Cash-flow Pro-forma Statement
Ye a r Ye a r 1 Ye a r 2 Ye a r 3
A CASH INFLOWS
Beginning cash balance 0 40,900 77,000
Equity - Cash 27,500 0 0
Term-loan 45,000 0 0
Cash sales 240,000 276,000 317,400
B Tota l Ca sh Inflow s 312,500 316,900 394,400
C CASH OUTFLOWS
Operational Expenditure:
Raw materials 36,000 37,800 39,690
Direct labor 36,000 37,800 39,690
Operational overheads 24,000 25,200 26,460
Marketing Expenditure:
Sales commission 12,000 12,600 13,230
Entertainment allowance 6,000 6,000 6,000
Adminstrative Expenditure:
Salaries & Wages 60,000 63,000 66,150
EPF & SOCSO 12,000 12,600 13,230
Adminstrative overheads 24,000 25,200 26,460
Loan Repayment:
Principal 9,000 9,000 9,000
Interest 4,500 3,600 2,700
Hire-purchase repayment:
Down payment 5,000 0 0
Principal 4,000 4,000 4,000
Interest 1,600 1,600 1,600
Capital Expenditure:
Machinery & Equipment 23,000 0 0
Furniture & Fixtures 7,000 0 0
Renovation 4,000 0 0
Pre-operational Expenditure 2,700 1,500 1,500
Deposits 800 0 0
D Tota l Ca sh Outflow s 271,600 239,900 249,710
E Ca sh Surplus/(De ficit) 40,900 77,000 144,690
F Ending ca sh ba la nce 40,900 77,000 144,690

MEDEC/ETR300 RS
 Profit & Loss Pro-forma
Statements
▪ A projected statement which shows the
expected profit or loss throughout the
planned period (3 consecutive years).
▪ For manufacturing companies → first
prepare the manufacturing account.
▪ For trading companies → first prepare the
trading account.
▪ For service companies →straight away
prepare the profit and loss account.
MEDEC/ETR300 RS
 Elements in A Profit & Loss
(Manufacturing & Trading (Service Companies)
Companies) ▪ Sales
▪ Sales ▪ Less: Expenses
▪ Less: Cost of Goods Sold  Administrative
▪ Gross Profit  Marketing
▪ Less: Expenses  Operational
 Administrative  Financial
 Marketing  Depreciation charges
 Financial  Other expenses
 Depreciation charges ▪ Net Profit
 Other expenses
▪ Net Profit
MEDEC/ETR300 RS
 Manufacturing & Trading Company

Sales 240,000
Less: Cost of Goods Sold 90,000
Gross Profit 150,000
Less: Expenses
Administrative 96,000
Marketing 18,000
Financial:
Interest on term loan 4,500
Interest on hire-purchase 1,00
Depreciation charges 11,800
Pre-operational expenditure 2,700
Total Expenditure 134,600
Net Profit 15,400
MEDEC/ETR300 RS
 Service Companies

Sales 240,000
Less: Expenses
Administrative 96,000
Marketing 18,000
Operational 96,000
Financial:
Interest on term loan 4,500
Interest on hire-purchase 1,600
Depreciation charges 11,800
Pre-operational expenditure 2,700
Total Expenditure 230,600
Net Profit 9,400

MEDEC/ETR300 RS
 Balance Sheet Statements
▪ It is a projected statement which shows the
financial position of the company a specific
point in time in terms of assets owned and
how those assets are financed.
▪ Statements are prepared for the period of
three (3) years.

MEDEC/ETR300 RS
 Elements in Balance Sheet
▪ Fixed Assets
 List all fixed assets at its book value (Cost – Accumulated
depreciation)
▪ Current Assets
 List all current assets (e.g. cash, stocks, account
receivables, deposits etc.)
▪ Equity
 Equity contribution (cash + assets) plus net profit
(accumulated)
▪ Long-term Liabilities
 Term-loan (year end balance)
 Hire-purchase (year end balance)

MEDEC/ETR300 RS
 Manufacturing & Trading Companies
Fixed Assets
Machinery & Equipment 24,000
Renovation 3,200
Van 20,000 47,200
Current Assets
Cash 40,900
Closing stock for raw materials 3,000
Closing stock for finished goods 3,000
Deposits 800 47,700
Total Assets 94,900
Equity
Capital 27,500
Net profit 15,400 42,900
Long-term Liabilities
Term-loan 36,000
Hire-purchase 16,000 52,000
Total Equity & Liabilities 94,900

MEDEC/ETR300 RS
 Service Companies
Fixed Assets
Machinery & Equipment 18,400
Furniture and Fixtures 5,600
Renovation 3,200
Van 20,000 47,200
Current Assets
Cash 40,900
Deposits 800 41,700
Total Assets 88,900

Equity
Capital 27,500
Net profit 9,400 36,900
Long-term Liabilities
Term-loan 36,000
Hire-purchase 16,000 52,000
Total Equity & Liabilities 88,900

MEDEC/ETR300 RS