financial plan how to by HC121004014152


									   Financial snapshot of what company owns
    and owes at any point in time
   Start-ups usually project for opening day and
    at the end of the first year
   Assets = Liabilities + Equity
   Process
    1. Fill in company name at top and date of opening
    2. Transfer current assets from asset listing to that
      Include money borrowed for expenses as cash on hand
    3. Transfer fixed assets from listing
    4. Total all assets
    5. Transfer amounts from sources of funds to
       liabilities and equities sections
 Anything that has to be paid back (loans) are
 Anything that you contributed falls to owner’s
 Equity section will change due to ownership
  ▪ Corporation will list stock outstanding and retained
  ▪ Proprietorships will list partner names individually
  ▪ Sole proprietorship will list owner’s name
   Assets must equal liabilities and equities
   Purpose: Show profit or loss over time
   Typically projected for 3-5 years
   Process
    1. Label company name and end of year 1 at top
    2. Obtain industry averages or expense
    3. Calculate best, worst, most likely sales forecast
    4. COGS = Cost of Goods Sold is the cost to
       produce or purchase the product or service
       (Services may have COGS = 0)
5. Gross Profit = amount of profit or loss you have
    after paying for the product/service
             Sales – COGS = Gross Profit
6.List Operating Expenses = costs of running
    business such as marketing, selling,
    administrative and general expenses
    Fill in expenses from page 2 of the packet. Make
    sure everything is per year.
7.Total the operating expenses – You can check these
    against industry averages
8.Net Profit (Loss) Before Taxes: This is the first idea of
  whether or not you are making money
Net Profit Before Taxes = Gross Profit – Total Operating Expenses
9. For corporations only: Add in taxes (WI: 7.9%;
   Federal of 15% for income 0-50,000; 25% for income
   of 50,000-75,000; 34% for income to 100,000)
10. Net Profit (loss) = Net Profit before taxes - Taxes
   Reminders:
     It’s OK to have a loss for the first year
     If you have an unreasonable high profit, check the
      sales forecast or expenses
     There should be a difference between the best
      and worst case scenarios in terms of variable
   Purpose: Shows changes in cash over time
    and helps you plan cash needs so you don’t
    run out
   Typically plan will have 3 years of cash flow
    projections with at least one year broken
    down by month
1. Find the cash balance on the opening day
  balance sheet. This is beginning cash balance.
  (This is similar to a checkbook. How much $ is in your
      checkbook to start?)
2. Cash receipts refers to the amount of $
  coming into your business. Usually this is
  sales. Break the sales up by the month in
  which the cash is collected.
(As you break it into months, consider the sales pattern.
  Is it seasonal? Is there a delay when you first start the
  business before your first sale? If you sell on credit,
  when does the money actually come in? )

3. Total Cash Available = Beginning Cash +

4. Cash Disbursements are the amounts of
  money you pay out each month.
(Consider the timing of payments. For example,
  insurance is usually paid every 3-6 months. Use only
  cash items. Remember to include money owners take
  out of the business (owner’s draw) and payments on
  items bought on credit. Total all cash disbursements
  for the statement, but list separate items on the

5. Ending Cash = Cash Available – Cash
6. Month’s Ending Cash is next month’s
  beginning cash
7. If there is a shortage (negative number) for
  any month, you will need a loan or extra cash
  when you start the business. Excess money
  left over should be invested, taken out by the
  owner, or used to decrease the beginning
  amount of funding.
   Two general processes
     Breakdown
      ▪ Take whole population and narrow down to your
      ▪ Of total population, 10% will buy my product
     Build up
      ▪ Add together different segments to get total number of
      ▪ Ex: customers from Marshfield, WR, SP
      ▪ Ex: newlyweds, anniversaries
Quantity         X   Price                   = Sales

# of customers   X   Average purchase        = Sales

# of units       X   Price per item          = Sales

# of hours       X   Price per hour          = Sales

# of purchases   X   Most popular purchase   = Sales
   May be easier to use different time frame
    (day, week, or month instead of year)
   Accuracy
   Reality check
   You would like to start a dog walking service.
   You are targeting dog owners who are
    between the ages of 30-80 with an income
    over $50,000.
   Census data indicates that there are 500
    households like that in this area
   You have no local competition. A similar
    service in Milwaukee charges $75 per week
    per dog for a 20-minute walk once a day
   Set objectives for price
   Choose a strategy
     skimming, penetration, psychological, promotional,
      competitive, premium
   Consider factors
     cost of product, customer expectations, product
      value, supply & demand, competitors, lemonade
      game items
   Set price
     Price needs to cover cost and profit
     Affects volume and image

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