DIP - Business Plan (E)

1. Lim SeiKee @ cK DIP - Business Plan (E)

2. Introduction Financial planning means to prepare the financial plan. [@ capital plan] A financial plan is an estimate of the total capital requirements of the business. Financial plan gives a total picture of the future financial activities of the business.

3. Financial Plan • Taking a commercial business as the most common organizational structure, the key objectives of producing a financial plan would be to: • • Create wealth for the business • • Generate cash, and • • Provide an adequate return on investment

4. FINANCIAL PLAN IS NOT ACCOUNTING • Accounting looks back in time, starting today and taking an historical view. • Business planning or forecasting is a forward-looking view, starting today and going forward into the future.

6. The working capital cycle Inflows Outflows Purchasing finished goods for re-sale Purchasing raw materials needed for the manufacturing of the final product Paying salaries and wages and other operating expenses • Cash sales to customers • Receipts from customers who were allowed to buy on credit (trade debtors) • Investment by shareholders

7. Cash flow can be described as a cycle: • The business uses cash to acquire resources (assets such as stocks) • The resources are put to work and goods and services produced. These are then sold to customers • Some customers pay in cash, but others ask for time to pay. Eventually they pay and these funds are used to settle any liabilities of the business. • And so the cycle repeats

8. The cash needed to make the cycle above work effectively is known as working capital. • Working capital is the cash needed to pay for the day to day operations of the business.

9. 3 important financial statements • Financial statements: • A. the income statement, • B. the cash flow projection, and • C. the balance sheet • PLUS, a brief explanation/analysis of these three statements.

10. (A) Income Statement • The Income Statement shows your Revenues, Expenses, and Profit • Revenue - Expenses = Profit/Loss.

12. (B) Cash flow projection • Opening balance-How much cash business has at start of time period • Cash inflows- How much cash is coming into business from product sales, sales of assets, loans from bank, and other sources of finance • Cash outflows- How much cash is going out of business, such as expenses, wages, raw materials, buying new machinery, and dividends • Closing balance- How much money is left at end of month

14. (C) Balance Sheet • The Balance Sheet is the last of the financial statements that you need to include in the Financial Plan section of the business plan. • It summarizes all the financial data about your business, breaking that data into 3 categories; assets, liabilities, and equity. • NOTE: Your business project may not have to produce a Balance Sheet.

15. Assets are tangible objects of financial value that are owned by the company. • A liability is a debt owed to a creditor of the company. • Equity is the net difference when the total liabilities are subtracted from the total assets.

17. Your financial plan: • Start with a sales forecast. • Create an expenses budget. • Develop the three financial statements. • DUE: THURSDAY, 27th FEBRUARY, 5PM