financing new business ventures, financial information and … · 2015-10-02 · get profit from...

Financing new business

ventures, financial information

and management

Prepared by: Intan Nazuha bt Abdullah 1

What is Financing?

Is the study of how people allocate their

assets over time under conditions of

certainty and uncertainty .

Finance aims to price assets based on

their risk level, and expected rate of

return


What is financial plan?


Is the final step in the preparation of a

business plan

Incorporates all financial data derived from

the operating budget

Example ; marketing, operating and

administration budget

Borrowed Funds

Collection of Accounts

Receivable

Owner's Investment

Borrowed Funds

Sale of Fixed Assets

Collection of Accounts

Receivable

Payment of Expenses

Payment for Inventory

Payment of Dividends

Cash Sales

Purchase of Fixed Assets

Flow of Cash Through A Business

4 Prepared by: Intan Nazuha bt Abdullah

The Process of Financial

Management


Financial statement

Cash flow pro forma statement

Income statement

Balance sheet

Usually

prepare

for 3 years

projection


Importance of financial plan


To determine the size of investment

To identify and propose the relevant sources of finance

To ensure that the initial capital is sufficient

To appraise the viability of the project before actual investment is

committed

To be used as a guideline for implementation

The process of developing financial

plan


Step 1

Gather all financial input

Step 2

Prepare the project implementation cost

schedule

Step 3

Sources of finance schedule

Step 6

The pro forma balance sheet

Step 5

Pro forma income statements

Step 4

The pro forma cash flow statement

Step 7

Financial analysis based on the above pro forma statements

STEP 1

Gathering the financial input

Accumulative of financial information

from the marketing, operation and

administration plans


Step 2

Components of Project

Implementation Cost


Project Implementation cost

Involve all type of cost to enable company to start the operation (whether short term or long term)

Purpose: to estimate total budget required in order to start with the business

Short term cost working capital required until business able to gain

sales

working capital depends on how long business able to get profit from the sales

Long term cost Involve capital investment i.e. machine, plant and

equipment


Project Implementation cost /

Capital expenditure Capital Investment

Land Buy or own – list in project cost

Lease- a part of deposit

Building Buy or own – current cost of the building

Lease – list in deposit

Renovation

Machine and Equipment Rent – list in deposit

Hire purchase – current cost

Furniture and office equipment

Vehicles Rent – list in deposit


Working Capital

Allocation for financing the daily operation

such as ◦ Buy raw material

◦ Inventory

◦ Administrative expenses

◦ Factory overhead

◦ Other expenses involve company’s operation

Working capital is usually prepared for 1 to 3 months depending on how long the company able to gain its first sales


Contingencies

To overcome

◦ increases in material price

◦ Miscalculation during preparing the project

implementation cost

◦ Usually 5 – 10% from project cost


EXPENDITURE


Administrative expenditure Salary

Fee

Accounting

Bank charge

Maintenance and repair

Electric, water and telephone

Insurance

Rental

Legal fees

Post & stamp

Printing & stationary

Staff training

travelling


Marketing expenditure Promotion

1% of total sales

Example: Sales projection = 283,880

Promotion expenditure = 2840

Delivery

Fluctuate from year to year

Estimate from previous year average rate

Vehicle expenditure

Semi fluctuate

Fixed component Road tax

Insurance of vehicle

Fluctuate component Estimation of 0.3% from sales


ADMINISTRATIVE EXPENDITURE MARKETING EXPENDITURE OPERATIONS EXPENDITURE

Fixed Assets RM Fixed Assets RM Fixed Assets RM

Land & Building 50,000

Furnitures 9,000 Signboard 5,000 Machinary and Equipment 100,000

Computer 5,000 van 70,000 Lorry 80,000

Renovation 30,000 Forklif 130,000

Equipment 7,000

Working Capital Working Capital Working Capital

Salary, EPF & SOCSO 10,000 advertisement and promotion 1,000 Raw Materials & Packaging 39,000

Travelling allowance 100 Carriage Inward & Duty

petrol/diesel 250 Salaries, EPF & SOCSO 3,363

Salary,EPF & SOCSO 900 petrol/diesel 500

Other Expenditure Other Expenditure Other Expenditure

Other Expenditure 200 Other Expenditure 300 Other Expenditure 400

Pre-Operation Pre-Operation Pre-Operation

Deposit (rent, utilities, etc.) 7,200 Deposit (rent, utilities, etc.) Deposit (rent, utilities, etc.)

Business Registration & Licences 300 Business Registration & Licences Business Registration & Licences

Insurance & Road Tax for Motor

Vehicle


Vehicle 2,000


Vehicle 1,000

Other Expenditure 100 Other Expenditure 2,200 Other Expenditure 1,350

TOTAL 118,800 TOTAL 81,750 TOTAL 355,613 18 Prepared by: Intan Nazuha bt Abdullah

ABC Construction

PROJECT IMPLEMENTATION COST & SOURCES OF FINANCE

Project Implementation Cost Sources of Finance

Requirements Cost Loan Hire-Purchase Own Contribution

Fixed Assets Cash

Existing F.

Assets

Land & Building 50,000 40,000 10,000

Furnitures 9,000 600 5,400 3,000

Computer 5,000 1,000 4,000

Renovation 30,000 24,400 5,600

Equipment 7,000 5,000 2,000

Signboard 5,000 3,500 1,500

van 70,000 45,000 21,000 4,000

Machinary and Equipment 100,000 34,000 58,000 8,000

Lorry 80,000 50,000 25,000 5,000

Forklif 130,000 105,000 23,000 2,000

Working Capital 2 months

Administrative 20,004 15,004 5,000

Marketing 4,500 3,300 1,200

Operations 85,726 75,726 10,000

Pre-Operations & Other

Expenditure 15,050 9,050 6,000

Contingencies 10% 61,128 58,128 3,000

TOTAL

672,408 469,708 132,400 70,300

depreciation

Total =

RM672408


Depreciation schedule

For every fixed assets excluding land

Methods:

◦ Straight line methods

◦ Declining balance


FIXED ASSETS Econ. Life (yrs) FIXED ASSETS Econ. Life (yrs)

Furnitures 5 5

Computer 5 5

Renovation 5 Machinary and Equipment 5

Equipment 5 Lorry 5

Signboard 5 Forklif 5

van 5 5


Fixed Asset Furnitures

Cost (RM) 9,000

Method Straight Line

Economic Life (yrs) 5

Annual Accumulated Year Depreciation Depreciation Book Value

- - 9,000

1 1,800 1,800 7,200

2 1,800 3,600 5,400

3 1,800 5,400 3,600

4 1,800 7,200 1,800

5 1,800 9,000 -

6 0 0 -

7 0 0 -

8 0 0 -

9 0 0 -

10 0 0 -

Depreciation value per year = (Original Price – Scrap Value)/Economy Life

= (9000 – 0)/5

= RM 1800/ year

Scrap value = estimation of asset value at its last year of economy life


STEP 3

Preparing the Sources of Finance

Schedule


• Equity contributions (cash / asset)

Internal sources

• Term loan

• Hire purchase External sources

Information on term loan and hire

purchase


Calculation of annual payment of

principal and interest


Term Loan Amortization Schedule


Hire purchase Loan Amortization

Schedule


Loan

LOAN (if required)

Interest rate 10%

Loan duration 5

Interest payment method* 2

* Method: 1 = flat rate 2 = annual rest


Hire purchase

HIRE-PURCHASE (if required)

Interest rate 5%

Hire-purchase duration 8


ABC Construction

PROJECT IMPLEMENTATION COST & SOURCES OF FINANCE

Project Implementation Cost Sources of Finance

Requirements Cost Loan Hire-Purchase Own Contribution

Fixed Assets Cash Existing F. Assets

Land & Building 50,000 35,000 15,000

Furnitures 9,000 600 5,400 3,000

Computer 5,000 1,000 4,000

Renovation 30,000 24,400 5,600

Equipment 7,000 5,000 2,000

Signboard 5,000 3,500 1,500

van 70,000 45,000 21,000 4,000

Machinary and Equipment 100,000 34,000 58,000 8,000

Lorry 80,000 50,000 25,000 5,000

Forklif 130,000 105,000 23,000 2,000

Working Capital 2 months

Administrative 20,000 15,000 5,000

Marketing 4,500 3,300 1,200

Operations 85,726 75,726 10,000

Pre-Operations & Other

Expenditure 15,050 9,050 6,000

Contingencies 10% 61,128 58,128 3,000

TOTAL

672,404 464,704 132,400 75,300

Loan Hire

Purchase


ABC Construction

LOAN & HIRE-PURCHASE AMMORTISATION SCHEDULES

LOAN REPAYMENT SCHEDULE HIRE-PURCHASE REPAYMENT SCHEDULE

Amount 464,704 Amount 132,400

Interest Rate 10% Interest Rate 5%

Duration (yrs) 5 Duration (yrs) 8

Method Baki Tahunan

Year Principal Interest Total Payment

Principal

Balance Year Principal Interest Total Payment

Principal

Balance

- -

464,704 - - 132,400

1 92,941 46,470 139,411

371,763 1 16,550 6,620 23,170 115,850

2 92,941 37,176 130,117

278,822 2 16,550 6,620 23,170

99,300

3 92,941 27,882 120,823

185,881 3 16,550 6,620 23,170

82,750

4 92,941 18,588 111,529

92,941 4 16,550 6,620 23,170

66,200

5 92,941 9,294 102,235 - 5 16,550 6,620 23,170

49,650

6 0 0 - - 6 16,550 6,620 23,170

33,100

7 0 0 - - 7 16,550 6,620 23,170

16,550

8 0 0 - - 8 16,550 6,620 23,170 -

9 0 0 - - 9 0 0 - -

10 0 0 - 10 0 0 - -

RM464704

5 years

464704 x 10%

92941+46470

464704-92941


Cash inflow and cash outflow for operation cost or buying fixed asset

Cash inflow Cash sales, capital(in cash), loan, account receivable

Cash outflow Raw material, administrative expenditure, factory overhead

etc

Balance of cash at certain period of time

Usually prepared for 3 years of operation

1st year is in monthly basis

Prior to pro forma statement, sales forecasting must be prepared first (from marketing planning)

STEP 4

Preparing The Pro Forma Cash Flow

Statement



Equity contribution

in cash

Term loan

Cash sales Collection

of receivables

Sales of assets

Cash Inflow


Cash Outflow

Operations

expenditure

Marketing

expenditure

Administrative

expenditure

Term loan

repayment

Hire purchase

repayment

Purchase of fixed

assets

Pre-operating

expenditure

Payments for

deposits

Miscellaneous

expenditure

Pre operation expenditure

Expenses for :

◦ Legal fee

◦ Company registration

◦ License fee

◦ Expertise services

◦ Feasibility studies

◦ Insurance

◦ etc


SALES PROJECTION

Month 1 3,600

Month 2 4,000

Month 3 4,800

Month 4 4,800

Month 5 4,800

Month 6 6,000

Month 7 6,000

Month 8 6,400

Month 9 6,400

Month 10 6,000

Month 11 6,000

Month 12 6,000

Total Year 1 64,800

ToTal Year 2 74,520

Total Year 3 89,424


OPERATIONS EXPENDITURE Fixed Assets RM

Machinary and Equipment

100,000

Lorry

80,000

Forklif

130,000

Working Capital

Raw Materials & Packaging

9,000

Carriage Inward & Duty

Salaries, EPF & SOCSO

3,363

petrol/diesel

500

Other Expenditure

Other Expenditure 400

Pra-Operasi

Deposit (rent, utilities, etc.)

Business Registration & Licences


Vehicle

1,000

Other Expenditure

1,350

TOTAL

325,613

PURCHASE PROJECTION

Month 1 9,000

Month 2 10,000

Month 3 12,000

Month 4 12,000

Month 5 12,000

Month 6 15,000

Month 7 15,000

Month 8 16,000

Month 9 16,000

Month 10 15,000

Month 11 15,000

Month 12 15,000

Total Year 1 162,000

ToTal Year 2 186,300

Total Year 3 223,560


TAX


tax

LHDN imposed tax to company depends

on:

◦ Sole propriety and partnership - imposed tax

on individual income

◦ Company under company act – imposed tax

on the profits


KWSP


kwsp

employer contribute 12%

employee contribute 11%

From the

employee

salary


STEP 5

Preparing the pro forma Income Statement /

Profit/loss statement

43

An income statement shows the

revenues and the expenses of a business

over a specified period of time.

It also shows the business’s profits.

New business owners should make pro

forma income statements for the first

year of operation as well as for future

years (usually the first three).

Prepared by: Intan Nazuha bt Abdullah

Simplified Pro Forma

Income Statement


STEP 6

Preparing the pro forma Balance

Sheet


Assets Owner’s equity

Liabilities

Prepared by: Intan Nazuha bt Abdullah Slide 46

Balance Sheets

A balance sheet is a financial statement

that shows the worth, or value, of a

business.

A pro forma balance sheet projects the

growth of a business in terms of how

much capital value the business will have

at a particular date in the future.


Balance Sheets (continued)

The assets side shows all property and capital

to which the business claims ownership.

The liabilities side shows all the debts of the

business.

The net worth of a business is determined by

adding all the value of what is owned and

subtracting from this the total debt of the

business.


Assets

Current assets include cash and assets that

are easily converted into cash, such as inventory

and accounts receivable.

Fixed assets are those capital purchases that

generally take a longer time to convert or

liquidate into cash, such as property, equipment,

and fixtures that require a special buyer.


Liabilities

Current liabilities are debts that are to

be paid within 12 months of the date of

the balance sheet.

Longterm liabilities are usually debts

that come due more than 12 months

after the date of the balance sheet.

Simplified Pro Forma

Balance Sheet


Sources of Funds


FINANCIAL INFORMATION AND

ANALYSING FINANCIAL DATA


Examples of External Uses

of Statement Analysis

Trade Creditors -- Focus on the liquidity of the

firm.

Bondholders -- Focus on the long-term cash

flow of the firm.

Shareholders -- Focus on the profitability and

long-term health of the firm.


Examples of Internal Uses

of Statement Analysis

Plan -- Focus on assessing the current financial

position and evaluating potential firm

opportunities.

Control -- Focus on return on investment for

various assets and asset efficiency.

Understand -- Focus on understanding how

suppliers of funds analyze the firm.


Primary Types of Financial

Statements

Income Statement

◦ A summary of a firm’s revenues and expenses over

a specified period, ending with net income or loss

for the period.

Balance Sheet

A summary of a firm’s financial position on a given date that shows total assets = total liabilities + owners’ equity.


THANK YOU…


financing new business ventures, financial information and … · 2015-10-02 · get profit from...

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