Finance Plan

Finance plan is carried out in order to identify the resources need to start the preschool plus how
those required resources will be financed through the available options. In addition to that
ongoing sales inflows and expense outflows will be determined through the finance plan and the
finance position of the business for upcoming three will be determined.
11. Resources and Finances
The owner of the preschool is willing to contribute $6000 as initial capital. Since it is not enough
to finance the business, owner of the preschool has asked for a loan from the bank where he
operates. The amount of the loan he has asked for is $ 13000. The loan should be paid within
three years where it operates and the interest is 8% per month. But monthly interest charge will
be carried out.

Financing Method
Owners Contribution
Bank Loan
Total

Value
$ 6000
$13000
$19000
Table 11.1

12. Capital Expenditure

In order to carry out this research related to the startup of the preschool owner has to incur S2000
which can be identified as sunk cost since it has already paid for the research done. There is no
any deviation in the research cost though the project is feasible or not according to the finance
plan. Legal cost S500 has to be incurred before starting the preschool, this is because there is
legal process according to the legal act when starting up a new business like preschool. Meaning
it should be up to the required standards and the certain documentation should be handed over to
the related departments.
Interior design cost of the rented place is $3000. It is carried out by an outside company which
has to be done through a pre agreement between the owner of the business and designing
company.
Since the place is rented, as key money owner of the rented place has asked to deposit $1000. It
can be redeemed once the agreement is over with the rented place owner. Furniture is playing a
main role; since the preschool has to be facilitated with required comfort. All the furniture
finishing as such done by outsourced party which are included all the required tables, chairs,
lockers etc. This is actually a pre agreed cost. On top of that owner of the preschool has decided
to buy a van. It will be cost $1000 which is going to be purchase at cash terms. All the value
addition taxes are included in the S1000.
In order to carry out the all the accounting estimation and the all accounting related legal
requirements, the business has hired an outside certified accountant who has asked for $500 for
the initial process which is a pre agreed amount.
Marketing cost is playing a major role in order to attract the targeted customer segment.
Basically in this cost printing cost of leaflets and advertisement publish on TV, internet and
newspapers have been included.
Telephone cost of $500 is incurred as an initial cost of the organization on communication which
is included the startup cost of internet connection as well.

Equipment cost of $1000 is included with all the stationary cost, computer accessories and other
required books or the preschool operations. All those required books are obtained from the
relevant department for preschool installment.

Initial Expenses
Research cost
Legal cost
Interior Design
Rent Deposit
Furniture
Vehicle cost
Accounting
Marketing
Telephone
Equipment
Total

Value ($)
$2000
$500
$3000
$1000
$2000
$1000
$500
$1000
$500
$1000
$12500
Table 12.1

As the capital expenditure business has to be incurred $12500 with reference to the Table 12.1
which is going to be financed through the owners capital and requested bank loan. Once the
capital expenditure has covered, cash position of the business is $6500. It is going to be carried
out as a short term finance fact which will be needed for the ongoing operation of the business.
Meaning it will manage the liquidation of the business.

12.1 Staff Expenditure

Staff expenditure does not come under capital expenditure since it incurs daily or monthly or
yearly depending on the time where the business carries. Following salaries has to be incurred
with reference to the Table 12.2
Staff Member

Owner(Manager)

Two Qualified Teacher

Helper

Cleaner ($10 per hour * 4 hours per day * 5

Salary/Wages($)

$24000 per annum

$21000 per annum*2=$42000per annum

$15000 per annum

$9600 per annum

days*4 weeks per month * 12 months)

Total

13 Business Concept of preschool

$90600 per annum

Preschool business concept will depend on the number of children who obtain the service under
company. Meaning higher the student, level of operation will be extended. Main objective is to
increase the number of students who studies in the preschool. Mainly students are divided to
three sections depending on the age level. For those who are 2 to 3 years old will be at the
beginning of preschool stage and for those children whose age is 4 will be in the middle
preschool and above that will be considered as upper preschool level.
For the newcomers admission will be charged in addition to that monthly course fee should be
given. As the initial step all the stationary requirements will be provided by the preschool if not
teacher will ask to bring the required equipment like books and stationary stuff as per the given
list. All that equipment is prepared in the same manner which can be identified in line with the
coding system invented. All those stationary requirements will be bought from a stationary book
shop which has been carried out as per the agreement between two parties.
Separate Stock Ledger will be carried out by the each teacher and will review daily in order to
inform the parents of the children to bring the required things. Pre-planned scheduled has been
developed related to each activities carried out. Depending on that parents will be informed what
should bring for next week in existing week in the notice. In addition to that separate book will
be developed for each student which is included the all relevant things to be brought. All pre
scheduled meeting will be mentioned in this book plus in the notice board.
Staffs who are going to recruit for the business is qualified teachers who have obtained the
degree through National Institute of Preschool. Any issues come under staff will be solved
through this institute since they are members of it. If there is any requirement like expansion of
staff can be contacted through the institute. The helper who is going to work in the business is
not a permanent member who can be shifted once she is done with the internship. There is an
agreement between the institute and preschool which should be agreed by both parties regarding
minimum salary and wages for teachers and helpers plus inspection of working place by the
institute, comfort level and safety of the job.

17. Expected Sales and Profit Scenario

This is where the total expected sales and profit for the upcoming three years are shown. Detail
financial information has been given with reference to the Table 17.1 for first year, Table 17.2 for
second year and Table 17.3 for third year.

18. Cash flow Statement

Cash flow statement is a statement which shows actual cash inflow and outflow transaction for
particular period. The cash flow statement is intended to provide information on a firm's liquidity
or solvency. The cash flow provides a clear understanding of a company's financial resources at a
given point in time. This will assist in managing short term cash availability of the firm. Detail
forecast of cash flow has been carried out with reference to Table 18.1, Table 18.2 and Table 18.3

19. Profit and loss statement and balance sheet

Profit and loss statement shows the financial performance of the business for a particular year.
With reference to the Table 19.1, Table 19.2 and Table 19.3 it shows expected profit and loss
statement for upcoming three years. Balance sheet indicates the financial position of the business
for particular date. Table 19.4 shows the balance sheet for upcoming year

20.1 Ratio Analysis

Financial ratios will provide the information about the organization related to Financial
Performance, Financial Position and Cash flow for the decision makers. But it depends on the
data which has provided. Through that future bankruptcy can predict. Depending on the
information provides ratios can be classified as follows;
1.
2.
3.
4.
5.

Liquidity Ratios
Asset turn over Ratios
Financial Leverage Ratios
Profitability Ratios
Dividend Policy Ratios

Liquidity Ratios
This is where the firms ability to meet the required financial obligation is checked. Mainly two
types of ratios are using namely; Current ratio and Quick ratio.
1. Current Ratio
Current Ratio = Current Assets/ Current Liabilities
2. Quick Ratio
Quick Ratio = (Current Assets-Inventory)/Current Liabilities
Asset Turnover Ratio
This is where the efficiency of asset utilization is expressed. Three main types of ratios are
Inventory Period Ratio and Average Collection Period.

1. Inventory Period Ratio

Inventory Period Ratio = Avg. Inventory/ (Cost of Goods Sold/365)
2. Average Collection Period

Average Collection Period = Accounts Receivable/(Annual Credit Sales/365)

Financial Leverage Ratio

This is where the long-term solvency of the organization will be provided by concerning long
term and short term facts.
1. Debt Ratio= Total debt/ Total Assets

2. Debt to Equity Ratio = Total Debt/Total Equity

3. Interest coverage = Earnings Before Interest and Tax/Interest Charge
Profitability Ratio
Success of the firm at generating maximum profit is shown in profitability ratio.
1. Gross Profit Margin = Gross Profit/Sales

2. Return on Assets = Net Income/Total Assets

3. Return on Equity = Net Income/Total Equity

Year

Ratios

Current Ratio
Debt Ratio
Interest coverage
Gross Profit Margin
Return on Assets
Return on Equity
Analysis of Preschool

1
16.78
0.74
2times
75.74%
0.24
2.07

2
7.64times
75.76%
1.62
13.82

3
9.95times
75.61%
2.18
18.62

Ratio

20.2 Breakeven Analysis

Breakeven is a point where there is no any profit and loss in the business. Meaning point at
which all the fixed cost of a business like preschool can be covered once total variable cost is
covered. This will clearly say number of sales to be carried out to cover up total overhead cost of
the business. In this business 153 children should be enrolled to reach the breakeven point.

Sales price per children = ($80+$60+$50)/3

= $63

Variable cost per children = ($20+$15+$10)/3

= $15

Contribution per children = $48

Fixed Cost

= ($5800+$1040+$500)

= $7340

Breakeven point

= $7340/$48
= 153 Children per month

Graph 19.2.1

A - $13600
B - $7340

C- Total Cost
P- Breakeven Point
Q- 153 Children per month

20. Strategies
With reference to the financial information gathered through above detail analysis, preschool
business is having positive trend over the upcoming three years. But with the high competition in
industry will split this competition with new preschool. In order to overcome that service of the
business should be differentiated to that of competitors. Meaning marketing strategies should be
implemented rather than trying to develop the service providing. Current marketing strategies
have been shifted from traditional marketing strategy to online marketing. Following strategies
can be used as follows;
1.
2.
3.
4.
5.
6.

Search Engine Optimization

Search Engine Marketing
Social Media Marketing
Email Marketing
Online Press Release
Online Video

In addition to that value additions should be considered to the service which will highlight the
price differences over the competitors.