Chapter 10

The Financial Plan

Hisrich
Peters

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Shepherd
Operating and Capital Budgets….

12-2
Operating and Capital budgets

Operation Budget
After Completing the Sales budgets,
entrepreneur can focus on preparing
operating budget
Operating budget consists of both Fixed
expenses and variable expense
Fixed Expenses are rent, utilities, Salaries,
advertising, depreciation and insurance
Variable expenses are labor, materials,
transportation or entertainment.
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Operating and Capital budgets

12-4
Operating and Capital Budgets

Capital budget
•Capital budgets are intended to provide a
basis for evaluating expenditures that will
impact the business more than a year.
•The purchase of new equipment, vehicles.
new equipment or a new facility considered
as capital expenditure.

12-5
Forecasting Sales

 There are many methods for projecting

sales some qualitative and some
quantitative.
 Most start-up would like to rely on
qualitative methods for forecasting sales.
 Entrepreneur should find out about other
start-up in the same industry.

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Pro forma Income statement
 Pro forma income statement provide projections of sales and
other operating expenses for each of the months during the
first year.
 Sales revenue for the Internet start-up is difficult to project
due to extensive ad is necessary
 The entrepreneurs should consider the selling expenses as
sales increases and modifying the advertising budget.
 Adjusting taxes because of the hiring new employees,
increasing office expenses.
 Some expenses like depreciation, utilities, rent, insurance
remain same unless new equipment is purchased.
 Some expenses like selling expenses, advertising expenses,
salaries & wages and taxes may be represented as a
percentage of projected net sales.
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Pro forma income statement

12-8
Pro forma Income Statement

12-9
Pro forma Cash flow

 The major problem That new venture face

is cash flow.
 It is important for the entrepreneur to make
the monthly for the projection for the first
year of the business.
 If the disbursements are greater than
receipts entrepreneur must either borrow
funs or have cash in a bank account.
 As business succeeds, the entrepreneur can
support negative cash periods.
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Pro forma Cash flow

12-11
Pro forma Balance Sheet
 Summarizes the projected assets, liabilities, and
net worth of the new venture.
 Assets are the items that are owned or available to
be used in the venture operations.
 Liabilities are the amount of money that is owed to
creditors.
 owners equity is the amount that owners’ have
invested in the business.
 Balance sheet is a picture of the business at a
certain moment in time

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Pro forma Balance sheet

12-13
Break-Even Analysis

 This is all about volume of sales where

venture neither makes profit nor incurs a
loss.
 The break-even sales point indicates to the
entrepreneur the volume of sales needed to
cover total variable and total fixed cost.

12-14
Break-Even Analysis

12-15
Valuing Your Company (From
Chapter 12)
 Factors in Valuation
 Nature and history of business.
 Economic outlook- general and industry.
 Comparative data.
 Book (net) value.
 Future earning capacity.
 Dividend-paying capacity.
 Assessment of goodwill/intangibles.
 Previous sale of stock.
 Market value of similar companies’ stock.

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Valuing Your Company (cont.)

 Ratio Analysis
 Serves as a measure of financial strengths and
weaknesses of the venture but should be used
with caution.
 It is typically used on actual financial results.
 Provides a sense of where problems exist in the
pro forma statements.

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Valuing Your Company (cont.)

12-18
Valuing Your Company (cont.)

12-19
Valuing Your Company (cont.)

12-20
Valuing Your Company (cont.)

12-21