CHAPTER 5

FINANCIAL PLAN AND RESOURCE GENERATION

5.1. Financial Plan
5.2. Type of Investors
5.3. Startup Fundraising

After this chapter, the students will be able to:

1. demonstrate understanding of the financial plan;
2. determine the importance of financial planning; and,
3. identify objectives of financial planning.
4.

5.1. Financial Plan

If you are planning to put up a business, one of the important things to consider is the
financial plan as it is where the budgets and expenses will rely on. A business without the
capital or money to be invested cannot operate immediately due to financial constraints.
The financial planning is a difficult task to accomplish because the company needs to
have an investor or someone that could give a capital investment for the new business.
A financial plan is a comprehensive overview of your financial goals and the steps you
need to take to achieve them. Since everyone’s financial situation is unique, every financial
plan will look a bit different. However, almost all plans will include your financial and life
goals, an analysis of the current state of your finances, projections of your future wealth
and a road map to how you’ll achieve the goals you’ve set.
A financial plan gives a clear vision of the overall operating income and expenses of
the business to distinguish if the company will gain profit and will be successful in the
business world.
Financial Planning is the process of estimating the capital required and determining its
competition. It is the process of framing financial policies in relation to procurement,
investment and administration of funds of an enterprise.
Objectives of Financial Planning
Financial planning has got many objectives to look forward to:
a. Determining capital requirements – This will depend upon factors like cost of
current and fixed assets; promotional expenses and long-range planning. Capital
requirements have to be looked with both aspects: short-term and long-term
requirements.
b. Determining capital structure – The capital structure is the composition of
capital, i.e., the relative kind and proportion of capital required in the business. This
includes decisions of debt-equity ratio, both short-term and long-term.
c. Framing financial policies with regards to cash control, lending, borrowings, etc.
 d. A finance manager ensures that the scarce financial resources are maximally
utilized in the best possible manner at least cost in order to get maximum returns
on investment.
Importance of Financial Planning
Financial planning is process of framing objectives, policies, procedures, programs
and budgets regarding the financial activities of a concern. This ensures effective and
adequate financial and investment policies. The importance can be outlined as:
1. Adequate funds have to be ensured.
2. Financial planning helps in ensuring a reasonable balance between outflow and
inflow of funds so that stability is maintained.
3. Financial planning ensures that the suppliers of funds are easily investing in
companies which exercise financial planning.
4. Financial planning helps in making growth and expansion programs which helps in
long-run survival of the company.
5. Financial planning reduces uncertainties with regards to changing market trends
which can be faced easily through enough funds.
6. Financial planning helps in reducing the uncertainties which can be a hindrance to
growth of the company. This helps in ensuring stability and profitability in concern.
The primary objective of doing business is to make money, a technopreneur will
probably look for investors that could provide them with capital investment to run or to
start the business idea that they had generated during the idea generation phase. Most
prospective investors are not looking for an opportunity to support the financial plan of a
specific person or groups. It is precisely advisable that those prospective investors will
recognize that the technopreneur have a passion for what they are doing.

5.2. Types of Investors

The six different investors types, ordered by expected time of encounter from earliest
to later fundraising stages, include:
1. Angel investors – Angel investors are individuals willing to make high-risk
investments in early-stage ventures. Typically, these individuals have had
successful entrepreneurial experience in the areas of investment they consider.
They usually are motivated by their desire to stay engaged in their past area of
success but are not willing to follow the tough lifestyle they experienced during
their entrepreneurial days.
2. Public funding agencies – Public funding agencies with the mandate and authority
to fund business ventures to achieve economic development, environmental,
cultural, or social policy objectives formulated by policy makers at various levels
of government are good sources of funding, particularly at the early stage.
3. Venture capital companies – These are specifically established to invest in high-
risk ventures that offer potentially high returns. VCists (VCs) raise funds to
capitalize investment funds that they manage. Their investors entrust them to
identify investment opportunities matching specific criteria and expectations,
which govern the fund managers’ investment decisions.

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 4. Private equity (PE) firms – These are specifically established to invest in
relatively mature ventures that have at least a modest financial or operational track
record while still offering relatively attractive terms in an intermediate time frame
(i.e., one to five years).
5. Strategic investors – They are defined by their investment intentions more than
any other factors. They could be a member of any of the previous types of investors
we have discussed; however, more often they are larger companies operating or
investing in the same industry or a complementary one or market as your venture.
Very often they are not in the business of investing in smaller ventures but may
believe an investment in your business would offer them some strategic value.
6. Banks – If you have reached a position to deal with banks, you have reached
financial nirvana, as banks offer the lowest costs of capital. A famous saying goes,
“A bank will only lend you money when you do not need it.”

5.3. Startup Fundraising

Aside from the six types of investors, the startup community contemplated the
following options to raise a capital for your startup business based on Sarath, CP, a digital
strategist and growth hacking specialist worked for both startups and big brands and helped
them to build a strong brand presence and achieve growth:
1. Funding your own idea
This way of raising funds is the most common among startup’s early stages.
Founders or the team members put their money together startup. Professional
investors in the market prefer this way of raising funds.
You must have some savings or assets that would be used for the business
startup. Funding your own startup is one way of telling your potential investors how
serious you are about this venture. Putting your money in the project shows that
you are willingly taking the risk of putting the money that you have worked hard
for at stake, supporting your idea with the faith you have in your company.

2. Crowdfunding
There are various types of crowdfunding. You have to select which one is
the best for your business such as rewards or equity-based crowdfunding. It is an
excellent way to gather funds for startups with artistic projects or even to raise
capital to finance the manufacturing of new technology at a large scale.
Any option you choose this option is of low risk as if you want to put the
product in the market and also get funds to finance your product and make it the
reality. This is also advantageous to get feedback from the early adopters of your
prototypes.

3. Friends and Family

One of the best places t o raise funds is from your own house. As your
family is well aware of your talents, they will be willing to support you regardless
of what you want to do. Family and friends are the only ones who know your
potential and will be willing to give money to start your business.
This may seem like a great way of gaining investment partners, but
everything has its drawbacks. Acquiring loans or investments from family or

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 friends may be advantageous to some businesses as they have faith in your talents
and your success. But for others that require assistance or guidelines, angel
investors are best way as your family might not have those experiences which are
needed.

4. Taking A Loan
Another way to get your startup financed is a business loan from a bank. It
is one way of keeping the initial control of the business in your own hand. Taking
a loan for startups might be healthy but only to those who have full confidence that
the business will prosper in the first run without difficulties. Again, it depends on
you and the type of business you want to incorporate.
But while considering the loan, check the interest rates and also if you have
collateral to give. Crosscheck with all the facts, whether you are able to comply
with all the terms of the loan.

5. Enter Competitions
For gaining publicity, you can enter competitions if you believe that your
idea is capable enough. Entering theses contests will be vey helpful to you as, in
one hand if you win the competition you will get a source of finance, and on the
other hand, you gain publicity for your product and people will be waiting for it to
hit the market (it acts as advertisements).
This is a low-risk option as you get your ideas out in front of investors and
if it is good, you can win the competition and get the money rewards to finance the
startup of your business to succeed. If you are not able to make it and win the cash
prize, being on that competition acts as an advert for you and angel investors may
contact you to invest in your idea. Both ways it’s a win for you.

REFERENCES

1. Juaneza, J. P., et al. (2019). Introduction to Technopreneurship, Unlimited

Books Library Services & Publishing Inc., Philippines.
2. Sison, L. G. (2018). Tech to Go, Philippines.
3. Modules of Dr. Jonathan W.L. Salvacion