Business Finance for Managers

This report provides study material and assignments on Business Finance for Managers. It covers topics such as fixed and variable costs, profit and cash flow forecast, breakeven point and margin of safety, and key performance indicators (KPIs). The report focuses on the furniture industry and includes a case study on a manufacturing furniture company.

BUSINESS FINANCE FOR
MANAGERS

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
Summary of Idea.....................................................................................................................................3
Fixed And variable cost...........................................................................................................................3
Profit and Cash Flow Forecast.................................................................................................................5
Breakeven point and Margin of safety.....................................................................................................7
Key Performance Indicator (KPI)............................................................................................................8
CONCLUSION...........................................................................................................................................9
REFERENCES..........................................................................................................................................10

INTRODUCTION
Business finance refers to an effective planning for accomplishing business objective. In
current era it is crucial for company’s to develop strategic idea that can enable it to get success.
The particular report is based on developing business plan which is related to manufacturing
furniture company. Case study will include fixed & variable cost, profit and cash flows,
breakeven and MOS, etc.
MAIN BODY
Summary of Idea
The business plan is related with operating in furniture industry that has objective of
providing quality and affordable priced products to targeted audience. The aim of company is to
manufacture furniture for kitchen, dining hall, office based, etc. organization has goal to provide
innovative stylish products to customers requirement with changing business scenario can be
accomplished. This particular furniture industry is highly competitive and needs new enter to be
more effective in turn organization can become able to beat cut throat competition. The pricing
strategy adopted by similar firms in sector is penetrating due their economies of scale.
Manufacturing Furniture Company (MFC) mainly needs to focus on reducing cost and increasing
profitability for having significant growth. The targeted segment is customers looking for stylish
furniture occupying lesser space with more capacity. There are various success determinants due
to high competition prevailing in country operator’s as emergence of global initiator through
ecommerce platform (Mohebi, 2017). Effective advertising and promotional strategy, updated
market analysis to determine customers taste & preferences, unique designs for attractive
physical appearance, quality products, sales after services, etc. These are some of the key
indicators which enable company to develop in furniture industry and get sustainability.
competition is at peak due to changing life style of customers and low switching cost. The most
crucial factors assist in getting attention towards MFC products is quality of furniture,
competitive price, more impressive advertising.

Fixed And variable cost
Manufacturing Furniture company is small scale organization which will require
sufficient amount of funds to have entrance in sector with good products. From the analysis it
can be stated that competition is high that forces firm to strategically plan for cost structure
(Karpac and Sedlakova, 2021). Cost structure comprises both fixed and variable expenses
according to the nature of business. Furniture business may face volatile and non fluctuating
expenses according to market forces. The most basic expenditure that organization ahs to incur
in order to get practical implementation of its theoretical concept of providing stylish plus quality
products. Expenditure such as raw materials, sales commission, utility expenses, shipping cost
of finished products, premise rent, promotional & administration cost. These are expected areas
where MFC will require spending for executing the company’s plan to meet market forces.
Particulars Year 1 Year 2 Year 3
Fixed Cost
Utility expenses 5000 5000 5000
Building rent 75000 75000 75000
packing supplies for Shipping
products 25000 25000 25000
Design expenses 40000 40000 40000
Total FC 145000 145000 145000
Variable cost (Per unit)
Raw materials 50000 55000 60000
Advertising and promotion cost 21500 25000 26000
Administration cost 20000 22500 23000
Sales commission 30000 29000 31500
Total VC 121500 131500 140500
The above illustrated table shows segregation between variable and fixed cost.
Organization’s cost structure for 3 years has been provided in order to get understand relation of
fixed cost & variable expenses with changing volume of goods produced for sales. The highest
expenditure identified fro continuing the plan in practical manner is building rent which is 75000

pa which is recorded in fixed category due to its non nature of changing with volume produced.
Utility expenses are taken as non changing factor of cost as organization has to pay it even if it
does not produce anything (Mokhtari, 2020). In furniture industry packing supplies are
considered to be non variable as it requires to be incurred regardless of number of units produced
by company. MFC has incurred designing expenses in order to accomplish the business objective
of providing differentiate goods. The another purpose to enter in market with offering great
capacity with smaller occupying space which has forced MFC to bear FC of 40000. Another
category mentioned in table is Variable cost that comprises raw material, advertising and
promotional, administration as well commission of sales. With variation in volume of sales the
company’s variable are directly linked so changing accordingly. The amount decided by
company to produce & sale 3 respective years are 4000, 5000 and 6000 units.
Profit and Cash Flow Forecast
This is one of the crucial component of business plan as it helps in identifying the important
areas which are contributing towards success or not. In order to get significant information
regarding mentioned procedure for manufacturing furniture company. The units decided to
produce and sell by MFC is 4000, 4500 and 5000 units with the price of 70 for each product.
Estimation of profits & cash flows are for MFC are given below:
Profit Forecast:
Particulars Year 1 Year 2 Year 3
Revenue (sales) 280000 315000 350000
Cost of goods sold
Opening inventory 55000 5000 5000
Purchase 55000 60000
Closing inventory -5000 -5000 -5000
Gross profit 230000 260000 290000
Advertising and promotion cost 21500 25000 26000

Administration cost 20000 22500 23000
Sales commission 30000 29000 31500
Utility expenses 5000 5000 5000
Building rent 75000 75000 75000
packing supplies for Shipping
products 25000 25000 25000
Design expenses 40000 40000 40000
Net profit 13500 38500 64500
Forecasting Cash flow for 3 years
Particulars Year 1 Year 2 Year 3
Cash balance at the beginning of
period 93500 219500
Sources of cash
Revenue 280000 315000 350000
Investment 25000 30000 25000
New capital 5000 2500 5500
Total cash inflows 310000 441000 600000
Cash Outflows
Building rent 75000 75000 75000
Advertising and promotion cost 21500 25000 26000
Design expenses 40000 40000 40000
Administration cost 20000 22500 23000
Utility expenses 5000 5000 5000

packing supplies for Shipping
products 25000 25000 25000
Sales commission 30000 29000 31500
Cash balance at the end of
period 93500 219500 374500
From the analysis of above mentioned tabular format it can be interpreted that company
will get good amount of profitability as well liquidity position in organization. The objective of
successful continuing of business with sufficient amount of liquidity will be possible (Leiby and
Madsen, 2017). Manufacturing Furniture Company will receive from investment, sales revenue
and new capital for smooth functioning. The respective amounts of outflows are mentioned to
derive significant knowledge regarding potential cash balance.
Breakeven point and Margin of safety
Particulars Year Year 2 Year 3
Sales 280000 315000 350000
Variable cost 121500 131500 140500
Contribution 158500 183500 209500
Fixed cost 145000 145000 145000
Net income 13500 38500 64500
Contribution margin
ratio 57% 58% 60%
Variable expense
ratio 43% 42% 40%

Breakeven point 256151 248910 242243
Margin of safety 23849 66090 107757
The above illustrated table shows the calculations regarding the required figures in
pound. This specified computation shows MOS & BEP of Manufacturer Furniture Company
(MFC). In addition to this, the breakeven point in sales has been calculated to determine the
significant information regarding the situation that t what moment company will be able to reach
point where it will earn no profit or loss to cover its expenses (Batkovskiy and et.al., 2017).
From the determined outcome of BEP it can be analyzed that organization’s revenue is more
than mentioned figure 256151 in turn it will be able to cover all expenses. In the initial year only
company will derive positive amount of revenue that is higher than its fixed & variable expenses.
Here are no such high risks with respect to this. In case of margin of safety it be can be seen that
figures derived are in upward direct as well sales is moving in same form. It protects
organization against the loss. By referring above table it can be evaluated that there is too high
margin of safety shown which is positive indication can helps MFC to understand that there is
lower risk in order to continue business.
Key Performance Indicator (KPI)
There are various types of KPIs which are widely useful in order to assess performance
of organization. It becomes essential for company to decide specific areas that contribute largely
in getting success (Hristov and Chirico, A., 2019). Being part of manufacturing furniture
industry it becomes crucial for company to pay attention revenue, profit margins, customer
experience metrics, employee satisfaction, qualitative etc. each key performance indicator ahs
its importance in order to aid company to get information regarding performance areas so that
lacking areas with appropriate evaluation so that improvement actions can be taken.
MCF should give largely emphasis on revenue KPI will helps company to get data
regarding how much it is earning from per customers (Al Dakheel and et.al., 2020). In addition
to this, it is calculated through dividing total revenue by number of customers. This helps in
analyzing adding or losing value associated with clients in order appropriate decision can be

taken. Successful revenue management strategy implementation becomes possible with help of
this specified indicator as failure aspects can be identified (What is KPI? 2021). Profit
maximization is main objective for commencing as well continuing business for longer duration.
This is one of the crucial segment in respect to measure performance and efficiency of company.
MFC can pay attention of Profit KPI for making assessment of its current financial performance
through giving focus on its increasing or decreasing trend of same along with volume of sales.
To get success in current competitive working scenario getting competitive advantages
through develop good employee relationship becomes important. There are various determinants
of success one of the crucial is employees’ satisfaction so that full potential to get operational
efficiency can be derived (Moktadir and et.al., 2020). Manufacturing Furniture Company should
take this particular indicator into process to analyze its operational efficiency. In order to sustain
for longer duration another key performance indicator is customer experience with company’s
products & services. It can be obtained through getting feedback regarding quality, designs,
price, sales after services to get loyal customers and get stability. In addition to this, having
ability to make improvement becomes possible by implementing such mentioned key
performance indicator. It all play important role in assessing financial health of organization.
CONCLUSION
From the above report it can be concluded that having appropriate idea according to
market trend provides successive path for gaining business objectives. The current report has
given emphasis son various essential factors require to consider for making business plan. It has
included information regarding Fixed & variable cost structure, profits, cash flow forecast, MOS
& BEP analysis, suitable KPIs to get deeper knowledge regarding the specified business plan.

REFERENCES
Books and Journals
Al Dakheel, J and et.al., 2020. Smart buildings features and key performance indicators: A
review. Sustainable Cities and Society. p.102328.
Batkovskiy, A. M. and et.al.,2017. Statistical simulation of the break-even point in the margin
analysis of the company. Journal of Applied Economic Sciences,
Romania: European Research Centre of Managerial Studies in Business
Administration. 12(2). p.558.
Hristov, I. and Chirico, A., 2019. The role of sustainability key performance indicators (KPIs) in
implementing sustainable strategies. Sustainability. 11(20). p.5742.
Karpac, D. and Sedlakova, I., 2021. The usage of economic profit and other forms of profit as a
part of prediction models to forecast the financial stability of business
entities in the context of globalization. In SHS Web of Conferences (Vol.
92). EDP Sciences.
Leiby, J. and Madsen, P. E., 2017. Margin of safety: Life history strategies and the effects of
socioeconomic status on self-selection into accounting. Accounting,
Organizations and Society. 60. pp.21-36.
Mohebi, N., 2017. Presentation of a Model to Achieve the Sustainable Development of Iran
Wood Furniture Industry. Journal of Wood and Forest Science and
Technology. 24(1). pp.117-130.
Mokhtari, H., 2020. Investigating the effect of board characteristics on the risk of profit forecast
error. Journal of Accounting and Management Vision. 3(26). pp.18-31.
Moktadir, M. A. and et.al., 2020. An investigation of key performance indicators for operational
excellence towards sustainability in the leather products industry. Business
Strategy and the Environment. 29(8). pp.3331-3351.
Online
What is KPI? 2021. [Online]. Available through: <
https://www.klipfolio.com/resources/articles/what-is-a-key-performance-
indicator>