DeanSnakeMaster1834
Topic: Homemade Chocolate and Candy Store Section G: Facilities…
Topic: Homemade Chocolate and Candy Store
Section G: Facilities and Equipment Plan (50 points)
Please review the Week 5 Lesson for information related to this section.
Describe the cost of your capital assets, such as production lines, office equipment, and buildings. If you plan to have a physical location, include a floor plan if possible. What are your startup timelines? Expansion timelines?
Section H: Technology Plan (50 points)
Please review the Week 5 Lesson for information related to this section.
In this section, describe your company’s IT needs, how much they will cost, and how you will implement them. Will you have a web presence, and if so, what functionality will it include? Will you handle your IT requirements “in-house” or outsource to IT consultantsexplain your decision.
Section I: Financial Plan (60 points)
Includes Use of Funds, Sales Forecast, and Break-even Analysis.
Please review the Week 6 Lesson and Chapter 16 of the textbook for information related this section.
Create your 5-year projection (See Week 6 Lesson for details) for your business. It is critical to include units, dollars, and assumptions in your projection. Create the sales projection in a narrative that includes the description of the units you plan to sell, the services (amount of them) you plan to provide, and your growth projections of these numbers. Document all assumptions and provide external source information for all assertions.
Include a graphical representation that shows when your company will start making a profit and the break-even point.
Paper/References (10 points).
Ebook below to help
You need to understand the financial situation of the specific countries where you’ll be doing business and plan for how it differs from the financial practices of your home country. For instance, in the United States, it is typical for business-to-business customers to extend credit with “30 day net” payment terms and for consumers to frequently pay with credit cards. Those terms may be very different in the countries where you are doing business, or, in some countries, consumers may not typically use credit cards.
As much as possible, you must also plan for the various factors that can affect or disrupt your financial situation when doing business offshore. For instance, some currencies are historically very stable, while others fluctuate greatly. Some countries regularly face rampant inflation. You should also look at the practices and laws related to keeping your funds in foreign financial institutionshow safe are they, what kinds of interest rates do they pay, are the funds insured? Political unrest or climate emergencies can also affect the value and security of your funds.
Consider all these factors when pricing your products or services internationally, establishing credit policies and charges, and determining where to keep funds and how much to keep overseas.
You’ll want to confer with an accountant knowledgeable in foreign business operations to help you plan your financials if you’re doing considerable business internationally. Be certain to ask about the tax ramifications, as tax issues when dealing with international operations and sales can be complicated.
Use the Globalization: Financial Considerations worksheet on page 296 to think through some of the financial issues facing you when doing business internationally.
Using the Abrams Method of Flow-Through Financials
One of the most difficult questions, especially for new businesses, is “Where do I get the figures for my financial forms?”
If you have been filling out the Flow-Through Financial worksheets throughout the previous chapters, you have already compiled many of the figures you need to complete the worksheets in this chapter. For instance, you have already computed your marketing budget in Chapter 10. Likewise, on other worksheets, you have detailed costs of salaries, equipment, and other aspects of your business.
Now just transfer the figures from each of your Flow-Through Financial worksheets (marked with the dollar-sign logo) to their appropriate line(s) on the Financials forms that follow. Refer to the chart on pages 294-295 to see on which form and line each specific figure should be placed.
Business Plan Financials
To make this process even easier, an Excel-based Business Plan Financials package is available for purchase as a supplement to this book. The worksheets are identical to the financial worksheets found in the book and embrace the Flow-Through Financials methodology used here. In addition, the Business Plan Financials perform all calculations for you, generate charts, and allow you to “tweak” your numbers to obtain the most accurate financial picture. Once you are satisfied with your numbers, you can print out all the financial forms necessary to include with your business plan. Visit www.PlanningShop.com to purchase the Business Plan Financials package.
Types of Financial Forms
For the financial portion of your business plan, the three most important forms are:
¦ Income Statement. Shows whether your company is making a profit.
¦ Cash Flow Projection. Shows whether the company has the cash to pay its bills.
¦ Balance Sheet. Shows how much the company is worth overall.
Other forms include:
¦ Sources and Use of Funds. Shows where you will get financing for your business and how you will spend the money invested or lent. A potential investor or loan officer will want to see this.
¦ Break-even Analysis. Shows the point at which sales exceed costs and you begin to make a profit. Advisable for internal planning.
¦ Startup Costs. For a new business shows the initial investment necessary to begin operations. A Startup Costs form can be found in Chapter 11, on page 220, and should be included in your completed business plan.
¦ Assumption Sheet. Shows those reading your financial statements how you determined the figures used. A good adjunct to other forms.
Time Frames Your Forms Should Cover
Generally, investors want to see financial projections for three to five years in the future, plus historical records of the past three to five years for currently operating businesses. If possible, find out what periods your lending institution or potential investor wants to see and prepare your forms accordingly. Otherwise, prepare forms to cover the time frames cited below.
¦ Income Statements. First year: monthly projections. Years two and three: quarterly projections. Years four and five: annual projections. Existing businesses: actual annual income statements for the last three years.
¦ Cash Flow Projections. First year: monthly projections. Years two through three: quarterly projections.
¦ Balance Sheet. First year: quarterly projections. Years two through five: annual projections. Existing businesses: current balance sheet and actual balance sheets for the last two years.
General Financial Terms
The terms that follow are frequently used in financial forms. If you are in business, you should have a working knowledge of these terms.
“In financials, we look for professionalism. Use standard formats. Hire an accountant, not so much as to come up with your numbers but for your forms. We want to see a cash flow analysis as well as everything else in a standard annual report (balance sheet, income statement). You or an accountant should compare your numbers with those of existing companies. If they are very different from those of well-managed companies, they may be unrealistic.”
Eugene Kleiner
Venture Capitalist
“I want to see detailed month-to-month reports for the first year, and quarterly projections for the next two to three years. After three years, the numbers become less significant.”
Eugene Kleiner
Venture Capitalist
Even if you’re familiar with financial statements, take a few minutes to update your understanding of these key words; and if you’ve never produced (or reviewed) a financial statement before, study these terms until you feel comfortable with them.
¦ Accounts Payable. Obligations owed to others; list of outstanding bills.
¦ Accounts Receivable. Obligations owed to your company by others; a list of outstanding invoices.
¦ Accumulated Depreciation. The amount of depreciation a company has already taken in the form of tax deductions; such accumulated depreciation must be accounted for when selling fixed assets.
¦ Assets. Anything the company owns having a positive monetary value.
¦ Cash. Immediately available money in the form of currency, checks, or bank deposits.
¦ Cost of Goods. Expenses directly associated with producing and making a specific product. Companies differ as to which expenses they attribute to cost of goods, but generally items such as source materials, direct labor, and freight are included.
¦ Cost of Sales. Expenses directly associated with selling a product or service. This typically includes items such as sales commissions, distributors’ fees, and so on, but does not generally include more indirect costs such as marketing.
¦ Current Assets. Assets that can be converted quickly, with relative ease, to cash; these assets are designed to be turned over in the normal course of doing business, such as bank deposits, inventory, and accounts receivable.
¦ Current Liabilities. Any bills, debts, or obligations occurring in the ongoing course of business; any debt due within the next year. Includes accounts payable, accrued payroll expenses, and loans and credit lines with less than one year’s maturity date.
¦ Debt. An ongoing obligation of the company, such as a bank loan.
¦ Depreciation. The wear and tear on fixed assetsnot a cash expenditure, but an ongoing expense of the business as equipment wears down. A tax deduction.
¦ Equity. Ownership of a company, usually distributed by means of shares of stock. A person who owns part of a company is said to have an equity interest in the company.
¦ Exchange rate. The price at which one currency is converted to be received in another currency. For example, if 100 US dollars are worth 120 Australian dollars, the exchange rate is 1.2, and if 100 US dollars are worth 80 Euros, the exchange rate is 0.8.
¦ Fixed Assets (or Property, Plant, and Equipment). Assets that are the ongoing means of doing business; such assets are generally cumbersome to turn into cash; includes buildings, land, and equipment.
¦ Fixed Costs. Ongoing expenses or overhead of a business that occur regardless of the amount of sales. These expenses usually include items such as rent, utilities, and salaries.
¦ Gross Profit. Percentage of income your company realizes on each sale before administrative expenses.
¦ Liabilities. Any outstanding obligation or debt of the company.
¦ Long-Term Liabilities. Loans and other debts that come due in more than a year’s time. This year’s interest payments on such loans, or debt service, are included in Current Liabilities.
¦ Net Profit. Amount of income after deducting all costs of doing business, including administrative overhead and other fixed costs.
¦ Net Worth. Value of a company after deducting liabilities from assets.
¦ Other or Intangible Assets. Aspects of your company that have value not easily interpreted in specific monetary terms or directly convertible to cash; assets such as a popular trademarked name and the goodwill a company has built up over time.
¦ Profit. Amount a company earns after expenses.
¦ Pro Forma. Financial statements based on projected future performance rather than actual historical data.
¦ Retained Earnings. Net worth amount the company keeps internally for ongoing development of the business rather than distributing to shareholders.
Financial Symbols
The symbols below commonly appear on financial forms:
( )
Numbers appearing in parentheses are negative numbers; they represent losses.
——
Single lines represent subtotals.
===
Double lines represent totals.
000’s
This indicates that numbers are expressed in thousands.
“It was years before we were profitable, but we had good cash flow that we managed well. We paid back the initial investment before we were even profitable.”
Kay Koplovitz
Founder, USA Network
Guidelines for Preparing Your Financial Forms
In preparing your financial forms, you will almost certainly have questions as to how to attribute certain expenses for your business. You might wonder whether you should ascribe sales commissions to cost of goods sold or to operating expenses. Accounting practices differ, so follow these guidelines:
1. Be conservative. Avoid the tendency to paint the rosiest picture possible; doing so reduces your credibility.
2. Be honest. Experienced financing sources will sense dishonest or manipulated figures; expect to be asked to justify your numbers.
3. Don’t be creative. Use standard formats and financial terms; otherwise you look inexperienced to financing sources.
4. Get your accountant’s advice.
5. Follow the practices used in your industry.
6. Choose the appropriate accounting method.
7. Be consistent. Make a decision and stick with it for all your accounts, otherwise you can’t compare one year’s figures to another.
Staffing Budget
In many companies, the costs associated with employees are often the largest expenses of the business. In any company, labor costs are a critical issue. When planning a business, it’s easy to underestimate or overlook labor costs.
Number and Timing
You must first figure out how many employees you will need and exactly when you will need them. It is easy to underestimate this number, anticipating that you will only hire outstanding employees, all of whom will work to maximum capacity. But remember, employees will probably not work as hard or as long as you do, so don’t plan your expenses based solely on your own level of productivity.
Some industries, such as those in the service sector, are particularly labor intensive. And in a small business, customers often expect very high levels of personal service, which can mean higher staffing levels. Even if yours is a sole proprietorship, you may occasionally need to hire some assistance, and you should plan accordingly.
If yours is a new business, you may want to talk with entrepreneurs in existing businesses about the level and timing of their personnel, to help you devise your own projections. If you are changing the direction of an existing business, how will your new needs affect your staffing levels and deployment? Will current employees be able to be trained for new tasks, or will new staff need to be hired?
Not all employees will be hired at once, and not all employees will be permanent. The staffing budget allows you to change the number of workers in each category, depending on the actual month(s) they work. You may have seasonal work that requires additional staff for some portions of the year. Timing your hiring can be very important in making certain you are adequately prepared for your workloads. Most people, even those who have been in business for a long time, underestimate the time it will take to hire and train new staff. Allow yourself realistic lead-time for staff recruitment, and don’t forget to account for the costs of any temporary help you may need until permanent staff is in place.
Also, it’s almost inevitable that you will at some point hire people who do not perform well. There will be costs associated with dismissing employees. These costs may include temporary help to fill their slots while you seek replacement and any severance pay that is required by their contract.
Benefits and Taxes
One of the first things you will need to do is to figure out the benefits that you will need and want to attract and retain qualified staff. These benefits may include health, life, dental, or disability insurance; pension benefits; and paid vacation.
Some employee costs are required by law. Check with your state’s department of labor to find out about mandatory benefits, such as workers’ compensation. There will also be payroll taxes, which can add a substantial amount to your total employee costs. You may want to talk with an accountant or lawyer to learn what costs to anticipate with regard to benefits and taxes.
The Staffing Budget worksheet on pages 302-303 will help you plot out all the labor costs associated with your business. The worksheet is presented in a monthly format to enable you to reflect the changes in your staffing, depending on when you hire new employees, add new divisions, or use seasonal or variable labor.
The information in the Staffing Budget transfers to the Salaries and Wages, Employee Benefits, and Payroll Taxes lines on your Income Statement, pages 306-309. The supplemental Business Plan Financials package available from www.PlanningShop.com includes the Staffing Budget and will automatically handle these calculations and transfers for you.
Cash Projections
An important fact to remember when preparing your financial projections is that you will often not receive full payment at the time of an actual sale or transaction. Projecting cash flow solely on the sales made, rather than cash actually received, will leave you seriously short on money.
Some industries have particularly long lag times between orders and payment. This can be especially true in manufacturing companies. A clothing manufacturer, for instance, may make sales many months before payment is due. Even in retail, you may find that you establish some credit accounts for very large or repeat customers and these customers take longer to pay.
Your business may allow payment terms over a number of months, or the type of work you do may make payment over time a necessity. In almost any company, some customers will be slow payers. While most customers may pay within 30 days, some may take as much as 120 days, and some will never pay at all. For instance, if you make a $10,000 sale in the month of February, you may only receive a deposit of $2,500 in February, with the rest paid as partial payments through June. Of course, you can try to reduce the amount of slow or nonpayers by requiring larger percentages of payment at the time of sale or delivery or by charging interest on unpaid balances, but it is still necessary to anticipate actual payment patterns in your cash flow projections.
It’s also a good idea to differentiate between the income of each product or service line. While it may seem like a bit more work to keep track of each product line’s or service line’s income separately, this information will help you make decisions about the long-term direction of your company and better understand exactly where your profits come from.
“Projections are actually far less important than the assumptions to projections. Generally, poor financials tend to be negative indicators rather than good financials being positive indicators. Are you assuming you’ll get an 80% market share when there’s no way you’ll get 10%? Do you think that way?”
Andrew Anker
Venture Capitalist2
