financilal plan

8/10/2019 Financilal Plan

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Financial Projection

How to do them in right

way.......


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Key financial documents

Profit and loss statement

Cash flow

Break-even analysisBalance sheet


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Other financial forms

Sources and uses of funds

Break even analysis

Starts up costAssumption sheet


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Guidelines for preparing financial

Documents....

Be conservative

Be honest

Dont !e creative"et accountant#s advice

$ollow industry practice

Choose appropriate accountingmethod

Be consistent


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Prepare financial worksheet

Staffing !udget

Professional services

Sales pro%ection&arketing !udget

Start- up cost


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Sources of Finance

How to get your !usiness

started...


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Almost half of all new ventures fail

because of poor financial

management -Dun & Brandstreet


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Choosing the ight Source of Finance

Amount of money required

A large amount of money is not available through some sources and the

other sources of finance may not offer enough flexibility for a smalleramount.

How quickly the money is needed

the longer a business can spend trying to raise the money, normally thecheaper it is. However it may need the money very quickly Thebusiness would then have to accept a higher cost.

The cheapest option available

the cost of finance is normally measured in terms of the extra moneythat needs to be paid to secure the initial amount the typical cost isthe interest that has to be paid on the borrowed amount. The cheapestform of money to a business comes from its trading profits.

A business needs to assess the different types of finance based on thefollowing criteria


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The amount of risk involved in the reason for the cash

a pro!ect which has less chance of leading to a profit is deemedmore risky than one that does. "otential sources of finance#especially external sources$ take this into account and may notlend money to higher risk business pro!ects, unless there issome sort of guarantee that their money will be returned.

The length of time of the requirement for finance % a goodentrepreneur will !udge whether the finance needed is for along%term pro!ect or short term and therefore decide what typeof finance they wish to use.


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Sources of Finance


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!usiness Growth


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!usiness Growth#$ternal

+ong ,erm

Short ,erm

#norganic "rowth


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!usiness Growth#$ternal +ong ,erm

! Shares" /rdinary Shares

"Preference Shares" 0ew share issues

" 1ights ssue

" Bonus or Scrip ssue

! +oans

" De!entures" Bank loans 2mortgage3

" &erchant or nvestment Banks

" "overnment456

! "rants


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!usiness Growth#$ternal

Short ,erm! Bank loans

! /verdraft facilities

! ,rade credit

! $actoring

! nvoice discounting! +easing


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!usiness Growth #$ternal Short %erm

$actoring is a financial transaction

where!y a !usiness sells its

accounts receiva!le2i.e.7 invoices3 to a

third party 2called a factor3 at a discountin

e(change for immediate money

$actoring allows company to raise finance

!ased on the value of your outstanding

invoices.
http://en.wikipedia.org/wiki/Financial_transactionhttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Invoicehttp://en.wikipedia.org/wiki/Factor_(agent)http://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Factor_(agent)http://en.wikipedia.org/wiki/Invoicehttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Financial_transaction


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$actoring also gives company the

opportunity to outsource your sales ledger

operations and to use more sophisticated

credit rating systems.

/ffers 89 ' 8:; of the total invoice value

Company pays factoring fees


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!usiness Growth #$ternal Short %erm

LEASING

is a contract between the leasing company, the lessor,and the customer (the lessee). The leasing companybuys and owns the asset that the lessee requires. Thecustomer hires the asset from the leasing company andpays rental over a pre-determined period for the use ofthe asset. There are two types of leases:


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!usiness Growth #$ternal#norganic "rowth#

! Ac>uisitions

" &erger" ,akeover


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#$ternal Sources of Finance

+ong ,erm ' may !e paid !ack after many

years or not at all?

Short ,erm ' used to cover fluctuations in

cash flow norganic "rowth ' growth generated !y

ac>uisition

The existence of capital marets enable firms to raiselong term loans and share capital.

Title: !ow up on "all #treet. $opyright: %etty &mages,available from 'ducation &mage %allery


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&ong term '(eans)* +oans 21epresent creditors to the company ' not owners3

! Ban( loans and mortgages' suita!le for small to mediumsi@ed firms where property or some other asset acts assecurity for the loan

" A mortgage loanis a loan secured !y real property! )erchant or *nvestment Ban(s' act on !ehalf of clients to

organise and underwrite raising finance! Government+,U' may offer loans in certain circumstances

" "rants

Shares 2Shareholders are part owners of acompany only in P+Cs3

! ew hare *ssues' arranged !y investment!anks.


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Short %erm

Ban( loans' necessity of paying interest on the payment7

repayment periods from < year upwards !ut generally no longer

than : or


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+"norganic Growth+

Ac0uisitions

,he necessity of

financing e(ternal

inorganic growth! )erger1" firms agree to %oin

together ' !oth may

retain some form of

identity

! %a(eover1" /ne firm secures

control of the other7 the

firm taken over may

lose its identity


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!usiness ,ngels


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!usiness ,ngels

ndividuals looking for investmentopportunities

"enerally small sums up to


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-enture Capital


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-enture Capital

Pooling of capital in the form of limitedcompanies ' enture Capital Companies

+ooking for investment opportunities in fast

growing !usinesses or !usinesses withhighly rated prospects

&ay also !uy out firms in administration whoare going concerns

&ay also provide advice7 contacts and

e(perience n the 67 venture capitalists have invested

:9 !illion since


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orking Capital

$irms need short-term finance to start up a !usiness or tocover day-to-day running costs. ,his is repaid over a short

period and provides a firm with wor(ing capital.

2or(ing capital,he difference !etween current assets less

current lia!ilities - the difference !etween a firm#s cash and

its short-term de!ts - the money it has to play with.

Liquidity

n !usiness7 the term refers to a company#s a!ility tomeet its o!ligations. f the firm is una!le to meet itso!ligation in time7 the company is in danger ofinsolvency. ,herefore7 heavy weight is put in financeplanning !y the controlling staff in order to register allpotential shortages in funds.


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Short %erm and &ong%ermFinance

Short-term finance is needed to cover the day to dayrunning of the business. &t will be paid back in a short period oftime, so less risky for lenders.

Long-term financetends to be spent on large pro!ects that

will pay back over a longer period of time. 'ore risky so lenderstend to ask for some form of insurance or security for if thecompany is unable to repay the loan. A mortgage is an exampleof secured long%term finance.


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%ypes of short/term finance

Overdraft

Suppliers credit orking capital


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%ypes of long/term finance

!ortgages "ank loans

Share issue

#ebentures

$etained profits

Hire purchase


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"nternal and #$ternal Finance

%nternal finance

comes from the trading of the business.

&'ternal finance

comes from individuals or organi(ations thatdo not trade directly with the business e.g.banks.


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#$amples of internal finance

&nternal finance tends to be the cheapest form offinance since a business does not need to pay intereston the money. However it may not be able to generatethe sums of money the business is looking for, especially

for larger uses of finance. )ay to day cash from sales to customers. 'oney loaned from trade suppliers through extended

credit. *eductions in the amount of stock held by the business. )isposal #sale$ of any surplus assets no longer needed


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#$amples of e$ternal finance

An overdraft from the bank. A loan from a bank or building society. The sale of new shares through a share

issue


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