by Robert Hisrich Michael P.Peters The Nature & Importance of Entrepreneurs Chapter One.
Chap 10 the Financial Plan by Shepherd Hisrich, Peters
Transcript of Chap 10 the Financial Plan by Shepherd Hisrich, Peters
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Presented To: Sir Ghulam Abbas sb
Presented By: M.Sheraz Anjum
07-16 Bukhtyar Ali 07-18
Khurram Shahzad 07-32 Muhammad Arqum 06-24
BS(IT)7th
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Is a person a born Entrepreneur?
THINK!!!
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Case Study
What’s theWhat’s the BIG BIG IDEAIDEA
Businesses Started by Young Businesses Started by Young EntrepreneursEntrepreneurs
The idea:The idea:
From the From the minds of:minds of:
The The business:business:
Online shoe Online shoe salessalesTony HsiehTony Hsieh
Nick Nick SwinmurnSwinmurnZappos.com, Zappos.com, 19991999
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Mind Your Own BusinessMind Your Own BusinessStart it . . . Grow it . . . Own it!Start it . . . Grow it . . . Own it!
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Khurram Shahzad
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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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Operating and Capital Budgets (1 of 2)
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
Ventures in which high level of inventory are necessary or where demand fluctuates significantly because of seasonality ----This Budget is valuable tool to asses cash needs
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Example of a Manufacturing Budget
<<Insert Table 10.1>>
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Operating and Capital Budgets (2 of 2)
Operating costs: List of fixed expenses gained regardless of sales
volume.
Variable expenses which may change from month to month depending on sales volume, seasonality or opportunities for new businesses
Capital budgets provide a basis for evaluating expenditures that will impact the business for more than one year.
Rent, Utilities, Salaries, Interest, depreciation, insurance
Advertising & selling expense
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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Bukhtyar Ali
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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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Muhammad Sheraz Anjum
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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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