Comprehensive Financial Report: Enterprise Start-up, Forecasting

This finance report provides a detailed analysis of the financial aspects of a new business venture, covering start-up costs, profit and loss forecasts, sourcing finance, and managing financial risks. The report begins with a breakdown of start-up costs, estimating a total of $2,975,150, which includes expenses for building, plant, machinery, equipment, incorporation, licenses, salaries, and other operational necessities. It then presents a three-year profit and loss forecast, projecting revenues from medical and cardio equipment sales, with annual growth rates of 10%. The report also discusses various sources of finance, including friends and family, equity shares, debt capital, and term loans, recommending a capital structure of 60% equity and 40% debt. Furthermore, it addresses financial risk management, focusing on credit, liquidity, and foreign currency risks, with strategies for mitigation. Finally, the report includes a six-month cash flow forecast, demonstrating sufficient cash funds for smooth business operations, projecting positive net cash flows throughout the period. Desklib provides access to this and other solved assignments for students.

MANAGEMENT
ENTERPRISE

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
FINANCE........................................................................................................................................1
REFERENCES..............................................................................................................................10

FINANCE
20 Start up costs
There is much more for the business than just furnishing and office spaces. At early
stages the start up cost requires meticulous accounting and a careful accounting. Many of the
new businesses neglect the process and rely instead over the flood of customers for keeping the
operations afloat, with abysmal results. Start up cost refers to the costs that company is required
to incur for starting the business (Shapiro and Hanouna, 2019). It includes registration cost, legal
costs and other cost associated with the business. Company is proposing to invest 3 million in the
project. The cost includes acquisition of plant, machineries and required equipments for running
the business.
Start up Costs
Building 800000
Plant 700000
Machineries 650000
Equipments 300000
Incorporation expenses 50000
License Fees 150000
Salaries and wages 250000
Superannuation 14250
Office Supplies 30000
Delivery vehicle 1800
Computers (10) 8000
Multifunction Printer (5) 5000
General expense 500
Legal expense 1000
Maintenance expense 1500
Utility Expenses 1600
Rent Expense 8000
Travel Expenses 1500
Insurance 2000
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Total 2975150
The above table show the break of start up cost of the business. on the basis of these costs
and expenses funds are raised from the market by company. It is ensured that the business before
raising funds is required to find the expenses and necessary expenditures that are required to be
incurred by the business. It is planning to incorporate company form, of business for which it
will require to get company registered. It is purchasing office building and taking factory
premises on rent. Further expenses of one year are considered in the start up cost so that it could
run the operations of the business without any interruptions and hold (Madura, 2020). The
estimated start up costs amount 2,975,150 and considering the amount proposed to be raised is 3
million rounded off. Management will be making best utilisation of the resources for the growth
and success of the business.
21 Profit and Loss forecast
Profit or loss statement refers to the statement prepared for measuring the profits earned or
loss suffered during the year. It covers all the incomes and expenses of the company. The
business has made forecast for three years on the basis of assumptions and estimates for the year.
Profit and Loss Forecast for the three years
Financial projections Year 1 Year 2 Year 3
Revenues from Medical
Equipments
728910 801801 881981.1
Revenue from Cardio
equipments
450000 495000 544500
Net Revenues 1178910 1296801 1426481
Materials 380000 402800 426968
Labour 220000 233200 247192
Overhead costs 60640 - 64278.4 - 68135.10 -
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Cost of goods sold 660640 700278.4 742295.1
Gross profit 44% 518270 46% 596522.6 48% 684186
Other Expenses:
Salaries and wages 250000 265000 276925
Superannuation 14250 15105 15784.72
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Office Supplies 30000 31800 33231
Depreciation - Machinery 1800 1800 1800
Depreciation - Motor
vehicle
8000 8000 8000
Depreciation - Computers
(10) and Multifunction
Printer (5)
5000 5000 5000
General expense 500 530 553.85
Legal expense 1000 1060 1107.7
Maintenance expense 1500 1590 1661.55
Utility Expenses 1600 1696 1772.32
Rent Expense 8000 8480 8861.6
Travel Expenses 1500 1590 1661.55
Insurance 2000 2000 2000
Power 4000 4240 4430.8
Total Other expenses 329150 347891 362790.1
Earnings Before Tax 189120 248631.6 321395.9
Less: Tax @ 30% 56736 74589.48 96418.77
Earnings After Tax 132384 174042.1 224977.1
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Company will be having earning from two main sources which are medical equipments
and specialised cardio equipments. as per the estimates revenues of the company will be growing
at 10% per year which will continue for 3 years. Sales of both the equipments will be growing at
constant speed. Cost of materials used for the equipments will grow at 6% every year on the
basis of current market trends and growth rate. Labour cost will also rise every year with
constant rate for three years considering the inflation and minimum wage requirements of the
company. Overhead cost will also grow every year at 6% according the trends prevailing and rise
in prices. Gross profit of the business for the year is estimated at 44% which will be growing at
2% every year. Gross profit margin has to be higher for meeting the expenses of the business and
management will establish strategies for achieving the gross profit margins.
The salaries will remain constant for the coming three years but wages of workers will
grow at 6% every year. Superannuation charges are measured on the salaries of the employees.
Office supplies will be increasing with the growth and expansion of business. Depreciation will
be charged on straight line basis over the on all the fixed assets of company (Zietlow and et.al.,
2018). General expenses, maintenance expenses, utility expenses, rent expenses, travel expenses
and power expenses will grow every year with rate of 6% for three years. The increase and rise
in expenses is considered on the basis of inflation rate in the country. Business will earn return of
11% in year 1, 13% in year 2 and 16% in year 3. Management of company is highly efficient in
achieving the estimated goals and objectives with the existing resources of company.
22 Sourcing Finance
It is essential for the business to search for the best sources from which the funds could
be raised for the business. A company must have an optimum capital structure so that the cost of
capital is least. Sources of finance that could be used are :
Friends and Family
New business is started by taking help from the family and friends by borrowing funds
for starting and setting up a business. Friends and family is the first source through which funds
could be raised in a small business. They may not be able to fill the needs of large scale business.
It is also termed as love as it is given out of love and affection with the owners of business. They
may provide funds with or without interest for starting the business.
Issue of shares
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Companies could raise funds by raising funds from public by issuing shares in the market
for a proportion of ownership in the company for fixed amount of particular shares. The option is
most commonly used for raising funds for the company (Apte and Kapshe, 2020)
. The equity finance like debt capital do not require company to pay fixed amount of interest
every decreasing the profit margins of company.
Debt Capital
Debt capital refers to raising funds from the public by issuing bonds or debentures to the
people. The money is borrowed for fixed amount of time and company has to redeem the
debentures on expiry of the term at par or premium. Company is required to pay fixed amount of
interest every year on the bonds at the rate they are issued. Company is available with tax
benefits in this source of capital.
Term Loans
Term loans are raised from the bank by borrowing money on the specified terms and
conditions. Loans are provided by the bank on keeping security by the business or by creating
charge over the fixed assets of company. Bank loans are also provided over a fixed rate of
interest to be paid by the company every year. Bank loans are more flexible as compared with
other sources of finance.
All the factors are to be considered while deciding about the sources of finance. There are
different sources through which funds could be raised which include debt, equity and term loans.
Business will use equity capital for raising around 60% of the funds for capital and the remaining
40% will be raised by issuing bonds with maturity of 6years and 10 years with interest rate of
6.5% and 7.5%. The capital mix will keep the cost of capital of the business to least.
23 Managing financial risks
Financial Risk refers to probability of losing the money on investments or business
ventures. The common & distinct financial risks include liquidity risk, credit risk and the foreign
currency risk. Financial risk could lead to loss of the capital.
Financial Risks
Credit Risk Credit risk is also referred as default risk that is associated
with borrowed money. Inability to repay the debt will lead
to defaults. Investors due to this risk suffer decreased
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income because of loan risks. It could affect the balance and
management of the business. The credit risks are to be
managed by the business by making agreements at fixed
rates
Liquidity Risks Liquidity risk is lack of cash funds for running the
operations of business. Ineffective management of the funds
could lead to working capital deficit. It leads to increased
borrowings and rise in interest cost. It affects the
management of operating cash cycle leading to default in
repayment of debts wiping considerable portion of the debt
(Maas, Schaltegger and Crutzen, 2016).It will be managing
the cash flow of the business effectively and adequately.
Foreign currency risk Foreign risks are caused due to the change in foreign current
rates. company imports the material from abroad that is paid
in foreign currency. Change in the currency rates causes
company to suffer gains or losses. Exposure to foreign
currency will be managed by hedging and forward contracts.
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24 Cash Flow Forecast
Cash flow statement provides the inflow and outflow of cash of the business. Cash flow
statements of the company provide the incomes and revenues for the year. The budgeted or
forecasted cash flow statement is prepared by making projections for the future incomes and
expenses of the business. Cash budget is prepared by analysing all the factors that influence the
cash budget of the company (Honggowati and et.al., 2017). Management has to consider several
factors associated with the budget such as inflation, market conditions, demand and supply,
economic conditions of the country. The below cash flow statement is prepared for six months
for the year one.
Cash Flow forecast for 6 months
Cash Flow statement
Month July August
Septemb
er
Octobe
r
Novemb
er
Decemb
er
6
months Full Year
Projected
Collection
from sales 50742 60742 69742 65743 53743 50743 351455 728910
Projected
cardio
equipment
s 30000 38000 45000 45000 32000 26000 225000 450000
Total
Projected
Revenues 80742 98742 114742 110743 85743 76743 567455 1178910
Investment
s 3000000 0 0 0 0 0 3000000 3000000
Inflows 3080742 98742 114742 110743 85743 76743 3567455 4178910
Expenses
Payment 0 30000 32000 35000 44000 40000 190000 380000
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to
Suppliers
Equipment 1500000 0 0 0 0 0 1500000
Plant and
property 1000000 1000000
Maintenan
ce 125 125 125 125 125 125 750 1500
Utility
Expenses 133.33 133.33 133.33 133.33 133.33 133.33 800 1600
Legal
expenses 0 100 100 100 100 100 500 (£7,000)
General
Expenses 35 35 40 50 40 50 250 (£7,000)
Rent 0 0 2000 0 0 2000 4000 (£24,500)
Travel
Expenses 125 125 125 125 125 125 750 (£448)
Insurance 0 0 500 0 0 500 1000 (£700)
Power 250 280 450 400 320 300 2000 (£175)
Salaries,
Benefits
and Wages 20000 20000 20000 20000 20000 20000 120000 250000
Total
Expenses
2520668.
3 20798.3 23473.3
20933.
3 20843.3 23333.3 130050.0 (£397,698)
Total
Outflows
2520668.
33
50798.3
3 55473.33
55933.
33 64843.33 63333.33
320050.0
0 3133100.00
Net Cash
Flows
560073.6
7
47943.6
7 59268.67
54809.
67 20899.67 13409.67 3247405. 1045810.
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The budget shows sales from equipments and cardio equipments is made on both cash and
credit terms. The sales on credit are given credit period of one month from sales. Funds are
raised in the first month and will be used for purchasing property, plant and equipments. Further
budget shows the expenses are paid evenly over the year except for general and power expenses
that are based on the production and season sales. Highest sales of company are seen in
September. The budget shows that company will not be required to borrow funds further for
running the business. There is a sufficient cash fund for running the business smoothly over the
year. Cash inflows of the business are sufficient for meeting the expenses of the company over
the year.
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REFERENCES
Books and Journals
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. John Wiley & Sons.
Madura, J., 2020. International financial management. Cengage Learning.
Zietlow, J. an et.al., 2018. Financial management for nonprofit organizations: policies and
practices. John Wiley & Sons.
Apte, P.G. and Kapshe, S., 2020. International Financial Management|. McGraw-Hill
Education.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner
Production.136.pp.237-248.
Honggowati, S. and et.al., 2017. Corporate governance and strategic management accounting
disclosure. Indonesian Journal of Sustainability Accounting and Management. 1(1).
pp.23-30.
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