Financing new business ventures, financial information and management. Prepared by: Intan Nazuha bt Abdullah 1

Transcription

1 Financing new business ventures, financial information and management 1

2 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 2

3 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 3

4 Flow of Cash Through A Business Owner's Investment Borrowed Borrowed Funds Funds Sale of Fixed Assets Cash Sales Collection Collection of of Accounts Accounts Receivable Receivable Purchase of Fixed Assets Payment of Expenses Payment of Dividends Payment for Inventory 4

5 The Process of Financial Management 5

6 Financial statement Cash flow pro forma statement Income statement Balance sheet Usually prepare for 3 years projection 6

7 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 7

8 The process of developing financial plan Step 1 Gather all financial input Step 4 The pro forma cash flow statement Step 7 Financial analysis based on the above pro forma statements Step 2 Prepare the project implementation cost schedule Step 5 Pro forma income statements Step 3 Sources of finance schedule Step 6 The pro forma balance sheet 8

9 STEP 1 Gathering the financial input Accumulative of financial information from the marketing, operation and administration plans 9

10 Step 2 Components of Project Implementation Cost 10

11 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 11

12 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 12

13 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 13

14 Contingencies To overcome increases in material price Miscalculation during preparing the project implementation cost Usually 5 10% from project cost 14

15 EXPENDITURE 15

16 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 16

17 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 17

18 ADMINISTRATIVE EXPENDITURE MARKETING EXPENDITURE OPERATIONS EXPENDITURE Fixed Assets RM Land & Building 50,000 Fixed Assets RM Fixed Assets RM 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 Insurance & Road Tax for Motor Vehicle 2,000 Insurance & Road Tax for Motor Vehicle 1,000 Other Expenditure 100 Other Expenditure 2,200 Other Expenditure 1,350 TOTAL 118,800 TOTAL 81,750 TOTAL 355,613 18

19 ABC Construction PROJECT IMPLEMENTATION COST & SOURCES OF FINANCE Project Implementation Cost Sources of Finance Requirements Cost Loan Hire-Purchase Own Contribution Fixed Assets Cash Land & Building 50,000 40,000 10,000 Furnitures 9, ,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 depreciation van 70,000 45,000 21,000 4,000 Existing F. Assets Machinary and Equipment 100,000 34,000 58,000 8,000 Lorry 80,000 50,000 25,000 5,000 Forklif 130, ,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 = RM TOTAL 672, , ,400 70,300 19

20 Depreciation schedule For every fixed assets excluding land Methods: Straight line methods Declining balance 20

21 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

22 Fixed Asset Furnitures Cost (RM) 9,000 Method Straight Line Economic Life (yrs) 5 Annual Accumulated Year Depreciation Depreciation Book Value - - 9, ,800 1,800 7, ,800 3,600 5, ,800 5,400 3, ,800 7,200 1, ,800 9, 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 22

23 STEP 3 Preparing the Sources of Finance Schedule Internal sources Equity contributions (cash / asset) External sources Term loan Hire purchase 23

24 24

25 Information on term loan and hire purchase 25

26 Calculation of annual payment of principal and interest 26

27 Term Loan Amortization Schedule 27

28 Hire purchase Loan Amortization Schedule 28

29 Loan LOAN (if required) Interest rate 10% Loan duration 5 Interest payment method* 2 * Method: 1 = flat rate 2 = annual rest 29

30 Hire purchase HIRE-PURCHASE (if required) Interest rate 5% Hire-purchase duration 8 30

31 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, ,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 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 Hire Expenditure 15,050 9,050 6,000 Loan Purchase Contingencies 10% 61,128 58,128 3,000 TOTAL 672, , ,400 75,300 31

32 ABC Construction LOAN & HIRE-PURCHASE AMMORTISATION SCHEDULES LOAN REPAYMENT SCHEDULE Amount 464,704 Amount 132,400 Interest Rate 10% Interest Rate 5% Duration (yrs) 5 Duration (yrs) 8 Method Baki Tahunan RM years Year Principal Interest Total Payment x 10% HIRE-PURCHASE REPAYMENT SCHEDULE Principal Balance Year Principal Interest Total Payment Principal Balance , , ,941 46, , , ,550 6,620 23, , ,941 37, , , ,550 6,620 23,170 99, ,941 27, , , ,550 6,620 23,170 82, ,941 18, ,529 92, ,550 6,620 23,170 66, ,941 9, , ,550 6,620 23,170 49, ,550 6,620 23,170 33, ,550 6,620 23,170 16, ,550 6,620 23,

33 STEP 4 Preparing The Pro Forma Cash Flow Statement 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 1 st year is in monthly basis Prior to pro forma statement, sales forecasting must be prepared first (from marketing planning) 33

34 Cash Inflow Equity contribution in cash Sales of assets Term loan Collection of receivables Cash sales 34

35 Cash Outflow Operations expenditure Hire purchase repayment Marketing expenditure Purchase of fixed assets Administrative expenditure Term loan repayment Pre-operating expenditure Payments for deposits Miscellaneous expenditure 35

36 Pre operation expenditure Expenses for : Legal fee Company registration License fee Expertise services Feasibility studies Insurance etc 36

37 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 37

38 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 Insurance & Road Tax for Motor Vehicle 1,000 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 Other Expenditure 1,350 TOTAL 325,613 38

39 TAX 39

40 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 40

41 KWSP 41

42 kwsp employer contribute 12% employee contribute 11% From the employee salary 42

43 STEP 5 Preparing the pro forma Income Statement / Profit/loss statement 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). 43

44 Simplified Pro Forma Income Statement 44

45 STEP 6 Preparing the pro forma Balance Sheet Assets Owner s equity Liabilities 45

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. Prepared by: Intan Nazuha bt Abdullah Slide 46

47 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. Prepared by: Intan Nazuha bt Abdullah Slide 47

48 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. Prepared by: Intan Nazuha bt Abdullah Slide 48

49 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. Prepared by: Intan Nazuha bt Abdullah Slide 49

50 Simplified Pro Forma Balance Sheet 50

51 Sources of Funds 51

52 FINANCIAL INFORMATION AND ANALYSING FINANCIAL DATA 52

53 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. 53

54 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. 54

55 Primary Types of Financial Statements Balance Sheet A summary of a firm s financial position on a given date that shows total assets = total liabilities + owners equity. Income Statement A summary of a firm s revenues and expenses over a specified period, ending with net income or loss for the period. 55

56 THANK YOU 56