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COM 10-1
 Financial Plan

Provides with complete picture of how much & when

funds are coming into the Organization- Where
funds are going- How much cash is available &
projected financial position of the firm

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 Helps new venture with most common problem- lack of
cash
 Explain to potential investor
 Plans to meet financial obligations
 How would he pay off debt or provide good ROI
 3 Years of projected financial data to satisfy any
outside investors
 First year should reflect Monthly data

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 Sales Budgets
 Developed before the pro forma income statement.
 Sales budget: estimate of the expected volume of
sales by month.
 Cost of sales can be determined from the sales
forecasts.
 In manufacturing ventures:
 costs of internal production or subcontracting are compared.
 Budgets reflects seasonal demand or Marketing
programs than can increase demand & inventory

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 Manufacturing Budget
 Provides the basis of projected cash flow for the cost
of goods produced.
 Provides Information of the actual production required
and necessary inventory needed.

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 Operating and Capital Budgets (2 of 2)
 Operating costs:
 List of fixed expenses gained regardless of sales volume.
Rent, Utilities, Salaries, Interest, depreciation, insurance
 Variable expenses which may change from month to
month depending on sales volume, seasonality or
opportunities for new businesses
Advertising & selling expense
 Capital budgets provide a basis for evaluating
expenditures that will impact the business for more
than one year. CB may project expenditure for new
Equipment, vehicles, computers etc

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Example of an Operating Budget

 <<Insert Table 10.2>>

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 Pro Forma Income Statements (1 of 2)
 Pro forma income: projected net profit calculated from
projected revenue minus projected costs and
expenses.
 Sales by month is calculated first.
 Basis of the figures: marketing research, industry sales,
and some trial experience.
 Forecasting techniques may be used.
 New ventures take time to build up sales.
 Projections of all operating expenses for each of the
months during the first year should be made.

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 Pro Forma Income Statements (2 of 2)
 Increasing selling expenses as sales increase should be
taken into account.
 Changes in expenses during the first year can require
month-by-month illustration.
 Projections should be made for years 2 and 3 as well.

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Example of a Pro Forma Income Statement

 <<Insert Table 10.3>>

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 Pro Forma Cash Flow (1 of 2)
 Projected cash available calculated from projected cash
accumulations minus projected cash disbursements.
 Cash & profit are not the same(Difference
between a Company’s total revenue & its total expense)
 Cash is the money that is free & readily available
to use in a business
 Sales may not be regarded as cash.
 Use of profit as a measure of success for a
new venture may be deceiving.

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 Pro Forma Cash Flow
 If disbursements are greater than receipts in any time
period the entrepreneur must either borrow funds or
have cash in bank account to cover the higher
disbursements
 Cash flow statement is based on best estimates.

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Example of a Pro Forma Cash Flow

 <<Insert Table 10.6>>

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 Pro Forma Balance Sheet
 Pro forma balance sheet: summarizes the projected
assets, liabilities, and net worth of the new venture.
 A picture of the business at a certain moment in time.
 Does not cover a period of time.

 Consists of:
 Assets: items that are owned or available to be used in
the venture operations.
 Liabilities: money that is owed to creditors.
 Owner’s equity: amount owners have invested and/or
retained from the venture operations.

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Example of a Balance Sheet

 <<Insert table 10.7>>

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 Break-Even Analysis
 Break-even: volume of sales where the venture neither
makes a profit nor incurs a loss.
 Break-even sales point indicates the volume of sales
needed to cover total variable and fixed expenses.

 The break-even formula:

TFC
B/E(Q) =
SP – VC/Unit (Marginal Contribution)

 Major weakness in calculating the breakeven lies in

determining if a cost is a fixed or variable.
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Graphic Illustration of Breakeven

 <<Insert Figure 10.1>>

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Questions Please…..
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