Entrepreneurship 110 Business Plan Financial Section Its All
Entrepreneurship 110 Business Plan – Financial Section “It’s All About Money Making Money”
Financial Section – Components o o Break-even Point Cash Flow Forecast/Cash Flow Notes Start-Up Costs/ Sources of Funding Financial Goal
Break-Even Point: Total monthly revenue = Total monthly costs n Revenue = money that comes into the business from sales n Costs = all the money paid out by the business (i. e. wages, loan payments, etc. )
o Break-even point = Total Fixed Costs (in units) Selling Price - Variable Per Unit Cost Per Unit o Variable costs are costs that vary directly with the number of units being made or sold. (materials or ingredients, shipping, labour etc. ) o Fixed costs are costs that are relatively constant no matter how many units are made or sold. (Rent, salaries, insurance, phone & taxes) o Complete the exercise on Break-Even Point
o Jennifer buys roses for $1 each and sells them for $2 each. Each summer her fixed costs are about $500. 00 1. What is her break-even point? (How many roses must she sell to cover her costs? ) 2. In 2010, she sold 4, 000 roses. How much profit did she make?
o The Buzz Razor Manufacturing Company is considering launching a new electric shaver. n It would retail for $120. 00. One shaver would require $20 in parts, $2, in packaging and $. 05 in shipping. o New fixed costs to launch the shaver would be $500, 000 for advertising and $200, 000 for administration 1. What is the company’s break-even point?
Margin and Markup Using the T-shirt example Margin o Selling Price is o Cost of the t-shirt o Margin is $15 $9 $6 “Margin” is expressed as a percentage of the selling price (margin of selling price) Margin = $6 = 40% Selling Price $15
Markup o “Markup” is expressed as a percentage of the cost of the item (Markup on cost of the item) Markup = Cost of the item $6 $9 = 67%
Cash Flow Forecast o This is a projection of ALL money coming into and going out of a business. o YOU ALWAYS START THE CASHFLOW A MONTH BEFORE THE BUSINESS OPENS. o For a summer business operating for two months, show June, July and August. o For a year round business, show all 12 months of operation.
June July Aug Sept TOTAL $200 $300 $100 $600 Cash Receipts Total (A) Cash Disbursement Total (B) Net Cash (A – B) Surplus (+) Deficit (-) Cumulative - $300 - $100 $200 $300
Components of a Cashflow Forecast Cash Receipts q This is the money being received by the business monthly. q This may include: loans, investments, sales, etc.
Cash Disbursements: n This is the money going out of the business on a monthly basis. n This may include: rent, utilities, insurance, wages (what you pay your employees), owners drawings (what you pay yourself), business registration ( $120), materials, advertising, loan repayment, etc.
Totals o You should always calculate totals for each category AND each month; you should always add down and across. o There are totals columns on the right hand side of the Cash Flow and at the bottom of the Cash Receipts and Cash Disbursements sections.
Net Cash o This section is where you calculate monthly totals. o Your monthly totals will either show a surplus (profit) or deficit (debt).
Assignment – Cash Flow Forecast o Read the business profile you have been given titled “Surreal Sweaters. ” o Using the financial information found in the handout, create a Cash Flow Forecast for the company.
Cash Flow Notes o Cash flow Notes accompany the Cash flow forecast in your Business Plan. o Cash flow Notes offer an explanation of how numbers/amounts found in the Cash Receipts and Cash Disbursements sections of the Cash flow Forecast were arrived at. o For example, if in the Cash Disbursements section you had Wages being $1200 for the month of September, in your Cash flow Notes section you would explain or show this number was arrived at.
Start Up Costs o List all of the purchases that you will need to make in order to start the business and their associated costs. o Remember, most of these costs will be incurred during the month BEFORE the business opens. o This list includes, but is not limited to: n n n n Equipment Inventory Office Supplies Furniture Promotion Wages Rent
Sample Start-Up Costs Item Cost Furniture $95 ($75 for office desk, $20 for office chair). Business Registration $120 Promotion $150 ($100 on printing of flyers, $50 on paper for flyers) TOTAL $365
Sources of Funding o Here, you explain where the money will come from to cover your start-up costs. o Ideally, some of this money should come from the Entrepreneur (savings, bank account, investors, etc. ) o Sources of Funding also typically include government or other loans. For this course, you may reference one of the following loans: n ACOA Loan - $20, 000 (full year and other business) n TED Seed Loan - $3, 000 (summer business only)
Sample – Sources of Funding The cost for start-up for this business is: - $365. 00 The sources of funding to cover these costs are: - Personal Savings Account $250 - Personal Loan $300
- Slides: 20