Teaching PowerPoint Slides Chapter 8

1
Financial Planning for

Business Start-ups 8
Synopsis
This chapter introduces students to financial

management for business start-ups and small
business enterprises. It focuses on the steps of
preparing a financial plan. A simple example is
provided as a guide for students to prepare a
financial plan for their project.
Introduction to Entrepreneurship All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 8– 3
Objectives
The objectives of this chapter are:

To introduce the basics of a financial plan and
prepare students for their practicum
entrepreneurial projects.
To introduce students to the financial plan for
small business start-ups.

Learning Outcomes
At the end of this chapter, students should be able

to:
Discuss the basics of a financial plan for small
business start-ups.
Prepare a financial plan for small business start-
ups.

List of Topics
 Overview of Financial Management for Small

Business Start-ups
 Financial Plan

Introduction
 This chapter introduces students to the basics

of financial management. It gives an example
on how to prepare a simple financial plan and
how it can be used as a guide for preparing a
financial plan for the entrepreneurial practicum
project.

Overview of Financial
Management for Small Business
Start-ups
 Money or finance to a business entity is like blood to our
body. Money circulates and flows to every part of the
business organization, i.e. administration, production,
marketing, and finance.
 It begins as money paid into the company by
entrepreneur or shareholders to form start-up capital for
project implementation.
 This money goes to finance for the purchase of assets, to
pay working capital (purchase of raw material, paying of
salary, rental, etc.) and buy other miscellaneous items.

Start-ups (cont.)

Start-ups (cont.)
 From Figure 8.1, you should understand the
following:
(a) Project implementation cost is the total capital
required to finance the project cost, including cost
of purchasing assets, expenses for working capital
(monthly expenses) and other miscellaneous items.
(b) Fund sources include owner’s equity, external
borrowings and contribution of owner’s existing
assets.

Start-ups (cont.)
(c) The cash flow projection statement represents

data on all monthly cash inflows (i.e. cash
capital injection, sales, collection of account
receivable, etc.) minus all monthly cash
outflows (i.e. purchases, salary, paying of
account payables, dividend, etc.) to yield the
monthly cash balance. Generally, a positive
monthly cash balance is a good indication that
the project is viable.

Start-ups (cont.)
(d) The profit and loss statement represents the

total sales in a financial period minus the cost
of goods sold/used to yield the gross profit.
The gross profit minus the total expenses for
the period (i.e. salary, rental, utility, etc.) will
yield the profit for the financial period.

Start-ups (cont.)
(e) The balance sheet represents the amount of

money or value at the end of a financial period
for every item listed as an asset (fixed asset
and current asset), items listed as liability
(borrowings and account payable), and equity
(capital injected and accumulated profit). The
balance sheet must be as follows:
Asset = Liability + Equity

Financial Plan
 A basic financial plan includes the following:

Step 1: Project implementation cost and sources
of fund
Step 2: Loan amortization
Step 3: Depreciation of asset
Step 4: Cash flow projection
Step 5: Projected financial statement
Step 6: Projected balance sheet

Project Implementation Cost and
Sources of Fund
(a)Project implementation cost
The project implementation cost includes all the costs
needed to start the business, such as cost of assets
(i.e. cost of equipment, renovation, furniture, etc.)
plus working capital (i.e. cost of salary, rental, raw
material, etc.) plus other miscellaneous items (i.e.
business registration, rental deposit, contingencies,
etc.).

Sources of Fund (cont.)




Loan Amortization

Depreciation of Asset
 The value of an asset depreciates over time. The

depreciation amount per year or per month is calculated
based on the life expectancy of the asset. It is deducted
as an expense in the profit and loss statement.
 Example: Cost of asset (equipment) = RM1,500
Life expectancy of asset is 100 weeks (approximately
2 years)
Depreciation per week = RM1,500/100 weeks
= RM15/1 week

Depreciation of Asset (cont.)

Cash Flow Projection
 Cash flow projection is the estimated total cash

inflow, cash outflow and balance of cash at the end
of the day, week or month. It is done for an
accounting period (e.g. one month or one year).
 The cash flow projection shows if there is going to
be cash shortage within the accounting period, in
which case, additional cash resources should be
allocated through further capital injection or
borrowings.

Cash Flow Projection (cont.)

Projected Financial Statement
The projected financial statement
shows the projected overall
results of each step that has been
discussed before. Table 8.6
shows the projected income
statement which gives the
expected financial performance
for the financial periods on total
sale, cost of goods sold, gross
profit, expenses and net profit.
Based on the projected income

statement,
Profit margin on sale
= Net profit/Sale ×100%
= 2,600/6,000 × 100%
= 43.33%
Projected Balance Sheet
 The balance sheet shows the balance for cash,

asset, liability and equity at the end of the
financial period. A company that is financially
healthy will have a high amount of cash and
asset, low liability and positive accumulated profit
instead of accumulated losses.

Projected Balance Sheet (cont.)
The balance sheet shows the balance for

cash, asset, liability and equity at the end
of the financial period. A company that is
financially healthy will have a high
amount of cash and asset, low liability
and positive accumulated profit instead
of accumulated losses.
Return on investment per month
= Net profit/Project implementation cost
×100%
= 2,600/2,700×100% = 96.3%
Return on asset per month
= Net profit/Total asset ×100%
= 2,600/4,300 ×100% = 60.5%

Summary
This chapter introduces students to the basics of

financial management. The six steps for preparing
financial statements will help students in their
entrepreneurial practicum project. The experience
will also enhance students’ understanding on
finance.


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1

Financial Planning for

This chapter introduces students to financial

Introduction to Entrepreneurship All Rights Reserved

The objectives of this chapter are:

Introduction to Entrepreneurship All Rights Reserved

At the end of this chapter, students should be able

Introduction to Entrepreneurship All Rights Reserved

 Overview of Financial Management for Small

Introduction to Entrepreneurship All Rights Reserved

 This chapter introduces students to the basics

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

(c) The cash flow projection statement represents

Introduction to Entrepreneurship All Rights Reserved

(d) The profit and loss statement represents the

Introduction to Entrepreneurship All Rights Reserved

(e) The balance sheet represents the amount of

Introduction to Entrepreneurship All Rights Reserved

 A basic financial plan includes the following:

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

 The value of an asset depreciates over time. The

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

 Cash flow projection is the estimated total cash

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Based on the projected income

 The balance sheet shows the balance for cash,

Introduction to Entrepreneurship All Rights Reserved

The balance sheet shows the balance for

Introduction to Entrepreneurship All Rights Reserved

This chapter introduces students to the basics of

Introduction to Entrepreneurship All Rights Reserved

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