IWAN BUDHIARTA

CFP, CWM, CHFA, BBA, MSC(Strat)

BUSINESS INTELLIGENCE ADVISOR
SAFIR SENDUK & PARTNERS SDN. BHD.

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Financial planning: Introduction
 You've dreamed about it, talked about it, maybe
even dabbled in it part time, but finally you've
decided to do it. Start your own business. The first
step is to think it through. Seriously. Before you
dive in full time, you need to be certain: Is the
money there? Are you the right person? Is it the
right idea? Is it the right time?
 Are you ready? So…go to the next slide !

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 The right time to ask yourself the tough questions is
before you start the business, not when you're
already in it up to your knees. The following
questions are designed to stimulate thought. There
are no right answers here.
 Why do you want to do this?
 Freedom?
 Control?
 Money?
 To combat boredom?

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What kind of personality do you have?

 Are you a leader? Only self-starters need apply for small

business ownership.
 Are you a decision-maker? Being in business means
making decisions, sometimes rapidly and usually on your
own.
 Are you competitive? Keep up or get left behind ... you will
have to know what the others in your field are doing.
 Are you compatible? You'll be in almost daily contact with
customers, vendors, professional and legal people. It's
important to be able to get along.
 Are you a planner? There is a lot to organize when starting
up and running a business, from inventory to staff to
choice of letterhead.
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 What kind of condition are you in physically,
emotionally and financially?

 Running a business may require working long days

and weekends. Check your endurance level.
 Burnout happens easily when you're making all the
decisions. Check your motivation level.
 Starting a small business means making sacrifices
in standard of living and personal time. Check
your family's adaptability.

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Financial planning: The competition
 Is there a market for your business? Will there be
customers, or is the area already saturated?
 When considering competition, you have to look at it at all
levels, not just the obvious rivals. For example, if you plan
to open a discount shoe store, you would look at other shoe
stores. But how many full-product-line discount centers
nearby also sell shoes? Make sure you are aware of all the
choices the consumer has of places to purchase a product
similar to yours.
 Telephone books, Chamber of Commerce listings, business
development centers and even real estate brokerages are
great places to start your search on local competitors.
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 Who are your target consumers?

 You'll have to determine the demographics and lifestyles of

your buyers if you want to attract and keep them. Secondary
research -- the type found in other people's studies -- is easily
located in industry surveys, in trade association publications
in your library reference section or from census reports.
 You can also conduct your primary research by going right to
the buyer for answers. Conducting street surveys, or gathering
focus groups, of your target audience should net you firsthand
knowledge of consumer acceptance of your product, price and
design. You can continue this type of research when the
business is under way to keep up with buyer demands. Don't
be afraid to approach competing businesses with your
questions; they have time and experience on their side.
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Financial planning:
How much money do you need?
 Cash. Capital. Funding. Whatever you choose to call it,
starting a business takes more than talent and hard
work.
 It takes money. Of course, to be a successful business
owner, you need a dose of the following:
 A knowledge of the business
 Luck (it never hurts)

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  But without sufficient money, you're back to dreams.
Don't get lost in the visions of fortune and freedom
before you ground yourself in the reality of making it
work.
 Most small businesses are undercapitalized right from
the start, according to the experts. Without budgets
and a simple cash flow statement, you risk
condemning your business to failure because of lack of
money. Enter your project prepared for the financial
challenges, and you'll stand a much greater chance of
thriving.

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  In order to ensure a profit for your business, you have
to think ahead in terms of expenses and income. By
preparing a budget as your "profit plan," you map out
projected incomes and outflows for your company.
Some experts recommend preparing a master budget
for the entire year, then breaking it down into
manageable sections, such as quarters or months.
 To determine the capital costs portion of your budget
for the first year of business, you'll have to start by
totaling what you have on hand, what you'll need to
open up shop and what you'll need to operate for the
first quarter.

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Financial planning:
How much money do you have?
 More than 75 percent of small-business owners self-
finance their company startup, according to the Small
Business Administration. So before you launch a new
enterprise, examine your resources -- not only those
you will put into the business, but also those
 In other words, how much capital can you count on?
First you will have to prepare a personal financial
statement that describes your assets and liabilities.
This financial statement will eventually become part of
your loan proposal package, so make sure the entries
are accurate. that will keep your household afloat.
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Financial planning: Thinking it
through
Personal Finance Worksheet

Liabilities

Cash: Credit card debts:

Savings: Auto loans:

Stocks and bonds: Real estate loans:

Real estate: Insurance payments:

Life insurance: Taxes:

Vehicles: Other liabilities:

Other liquid assets:

Total: Total:

Net worth (assets minus liabilities):

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Financial planning: Family budget
 You'll need to add up what the family will require to make
it through. You have to examine the saving and spending
habits of your family to do this. The best way to understand
your family's personal cash flow needs is to create budget.
 If you already have a budget, look back over the past year's
expenses. If you don't have one, try to recreate what the
family spent last year, at least in the major categories like
loan payments, food, utilities and entertainment. Since
many of the expenses are variable, identify which can be
cut back, and which can be cut out.

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 Family Budget Worksheet

Husband's net income

Wife's net income

Income
Dividends and interest

Other
Total:

Auto payment

Insurance
Fixed
Mortgage or rent

Taxes
Child care
Clothing
Entertainment
Expenses
Food
Gas
Gifts
Flexible
Home repairs

Telephone
Utilities
Vacations
Other
Total:

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  Remember, too, that at least one partner's income will
change, maybe for the worse, for the first few years of
business startup and growth, so you will have to write your
new budget to reflect the loss of income, or change in
income. If the budding entrepreneur is the sole
breadwinner, you'll have to plan on a larger loss of income.
 Put at least one-fourth of the family's annual expenses in a
bank account before you open your business. Financial
planners always recommend an additional three-month
liquid emergency fund, such as a money market account or
short-term certificate of deposit. You may want to increase
that to six months to cover the family during startup Use
these figures to create a one- to three-year family survival
plan in case the business does not generate the expected
revenues.

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Financial planning:
Calculating business costs
 The family expenses have been calculated, now what
about the business? Startup necessities will vary
depending on the type of business. To open the doors
of a new construction company you need heavy
equipment, while a boutique needs clothing inventory.
 Once again, you must create financial statements. This
time they break out what it will cost to open the doors,
and what it will cost to keep the business operating.
Most of the numbers you need can be found by calling
vendors, suppliers, and professional and government
offices.
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  Some items to consider in startup are the physical
property and its condition, inventory, legal fees,
supplies and services, and insurance. You'll also
need to include advertising costs, because if the
public doesn't know you're in business, you won't
be.
 A basic startup worksheet would look like this:
Advertising
Equipment
Insurance
Legal fees
Licenses
Remodeling
Rent
Supplies
Utilities
Other
Total:
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  Once the doors are open, you have to be able to
keep them open, so you need to know your
operating costs. The Small Business
Administration recommends that you be prepared
for three months of operating costs, without
relying much on income from the new company.
 A basic operating worksheet would include the
following: Advertising
Cost of living
Insurance
Utilities
Rent
Supplies
Taxes
Wages
Total:
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  If you total up three months worth of operating costs
(you should already have the cost of living portion, if
you calculated the family budget) you have a good idea
of what you need to go into business. The operating
cost statement, coupled with the net worth statement,
will tell how much you can personally afford, and how
much you'll need to finance.

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Financial planning:
When will you break even?
 To stay in business, you have to make a profit. So how
many widgets do you need to sell to start making
money? You'll know the answer when you calculate
your break-even point. It's an important concept to
learn before you get started, because below the break-
even point you generate losses, above that point it's
profits. How do you figure it out? It's fairly simple. The
break-even point is where sales cover costs.
 Here's the formula in units: Total fixed costs divided
by (Price per unit minus Variable costs per unit) equals
sales at the break even point.
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  For example, you calculated that your sunglasses
manufacturing plant has fixed overhead expenses of
$7,000 a year. That covers items such as the rent,
electric bill and payroll. To make, advertise and mail
the sunglasses costs $4.50 a pair. That is your variable
cost. You think you can easily sell the sunglasses for $12
each, based on your industry research.
 So: $7,000 divided by ($12 minus $4.50) = 933
 You would have to sell 933 pairs of sunglasses to break
even.
 In dollars, you can calculate the sales volume needed
to reach the break-even point by multiplying the
number of sunglasses you need to sell by the selling
price: 933 x $12 = $11,196
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  Break-even analysis can show you profit levels of sales
and help you determine the success of your project
before you start. However, it does not help you to
examine cash flow, the actual movement of cash in
and out of business. Getting a handle on cash flow is
essential to maintaining financial control.

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Financial planning: Figuring cash flow
 While your worksheets help you build a budget for the
future, you will need to check periodically on the
immediate financial health of your company. Cash flow
analysis can help you do that. A projected cash flow
statement estimates what the flow of money will be like in
the coming months or years based on a history of sales and
expenses. A monthly cash flow statement reveals the
current state of affairs.
 A cash flow budget is your core tool in maintaining control
over company finances. While you can almost always cut
back on costs, or the cash going out, you can't always
generate sales, or income. So you need to know where the
money is, and where it's going.

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 The basic elements of cash flow are:

 Starting cash, or starting balance -- What you have on

hand at the beginning of the month.
 Cash in -- All cash received during the month,
including sales, paid receivables, interest or cash from
sales of assets or stock.
 Cash out -- All fixed and variable expenses
 Ending cash, or ending balance -- Add Starting Cash
to Cash In for total cash, then subtract Cash Out.

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  Here is an example of how you measure cash flow by
subtracting your monthly ending balance from your
starting balance.
 Let's say you started the month with $3,500. You
brought in $1,000 in sales and you paid out $400 in
rent and $600 in wages for a total of $1,000 in
expenses. So your ending balance is still $3,500. While
you did show some sales, your monthly cash flow
would be $0. To survive in business, you want positive
cash flow, which means you are taking more in than
you are spending. Positive cash flow gives you forward
motion to build and grow.

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  Even a small lag in sales can make a dramatic impact
on cash flow, but you might not know that without
your cash flow budget. At the end of every month,
compare your actual business sales with your
estimated cash flow projections. If they are out of
whack, consider the cause. Maybe you didn't factor in
the need to hire summer vacation replacement help or
the jump in paper prices for your printing business
inventory. Cut back on the outflow where you can, and
adjust monthly cash flow projections to more
realistically meet your needs.

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Top Ten Financial Planning Tips
for New Businesses
 With many small businesses currently stuggling as the
global credit crunch really begins to bite, now is a
particularly apt time to make sure that your company’s
finances are in order. Safir Senduk & Partners for
Business Solutions offers their top ten tips that all
small firms should adopt to keep their heads above
water.

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 1. Make financial reports your best friend
Don't be afraid of financial reports. Basic reports such as your profit & loss account, sales forecast
and cashflow analysis, should be your best friend - putting you in control of your business
finances. Get to grips with it early on - you do need a clear idea of the level of sales you expect to
achieve and your costs.

2. Always Budget
Budgeting is the most effective way to manage your business' cashflow, and allows you to take
advantage of any new business opportunities. Always have a contingency fund and, most
importantly, be realistic.

3. Monitor your finances regularly

The best financial reports in the world are useless if you don't review them regularly. Take time to
monitor your finances at least monthly. This will allow you to identify any potential problems in
advance and take steps to avoid bigger problems later.

4. Cash is king
Never underestimate how much cash you need. Many businesses fail because they don't have
enough cash, not because they are unprofitable. Review cashflow regularly, and carefully balance
any credit given to customers with the terms of your suppliers. Don't be afraid to negotiate with
suppliers.

5. Manage Risk
Going into business is risky enough - avoid unnecessary risks, for example, by using insurance
wisely to avoid unexpected costs.
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 6. Don't forget your most valuable asset
Many businesses fail to think about what they would do if a key member of staff was suddenly unable
to work. Think about using insurance where possible to mitigate these risks.

7. Protect your share of the business

If you are a partner or a company director protect your business in the event of a partner or a co-
director becoming ill or dying. Life assurance, for instance, is historically cheap. On the death of a
partner or co-director it can be set up to i) provide funds to purchase shares or repay capital accounts
and ii) give bereaved families a fair share of the business.

8. Maximise the returns from your bank account

Many businesses need a reasonable amount of cash in the bank, not least for their tax liabilities. Make
your money work for you by always getting a competitive rate of interest. But don't leave too much
money in your current account - most banks allow you to transfer funds quickly between current and
deposit accounts allowing you to earn as much interest as possible.

9. Consider all your funding options

If you need to borrow money to get the business started always consider all your options and check
whether there is any financial assistance available, such as grants. Don't blindly accept the first offer
you receive. Always read the small print and get advice if you are not sure.

10. Get Professional advice where appropriate

Don't avoid professional advice because you think its going to be expensive. Good advice often more
than not pays for itself.
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FINANCIAL PROJECTION
The truth may hurt, but financial projections should be brutally honest
 Every small-business owner asks these questions:
 How many employees should I add? Or cut?
 Where should I keep costs so I can get the profit margin I want?
 Will I need to find more capital?
 Are my revenues going to grow fast enough for me to gain market share?
 The answer to every one of them is found in one document -- the financial
projection.

Honesty should be the policy

 All major business decisions flow from the forecast, which looks ahead several
years -- three to five is usual -- and projects sales, costs and other key numbers
that affect a business owner's bottom line.
 To be useful, a financial forecast should be an honest, no-holds-barred
projection. Unfortunately, many are no more accurate than a magic 8-ball.

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Cash forecasts
 These break down the budget and 12-month forecast into even further
detail. The focus is on cash flow, rather than accounting profit, and
periods may be as short as a week in order to capture fluctuations
within a month.
 All projections should be broken out by months for at least one year. If
you choose to include additional years, they generally do not need to be
any more detailed than by quarters for another year and then annually
after that.
 The projections should include an income statement and a balance
sheet. Expenses can be summarized by department or major expense
category; you can hold line-item detail for the budget. Cash needs
should be clearly identified, possibly by adding a separate statement of
cash flows. If your financial statements usually report financial rations
or expenses as a percent of sales, calculate and report these as part of
the projections, too.

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= THANK YOU =

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