UCBS7037 Financial Plan: Aunt Hattie's Geode Business Project

This project presents a detailed financial plan for Aunt Hattie's geode import business, addressing the financial viability of importing geodes from Uruguay and selling them in London. The plan includes an executive summary, introduction, and discussion of initial investment, including the sources of funding and capital structure. It incorporates assumptions and sensitivity analysis to evaluate different scenarios, assessing the impact of price and sales volume fluctuations. Breakeven analysis, income statements, balance sheets, and monthly cash flow statements are provided to analyze the business's financial performance. The project concludes with recommendations and reflections on the business's potential. The document also analyzes the time value of money using a Discounted Cash Flow Model. Overall, the plan aims to determine the potential profitability and sustainability of the business venture, providing a comprehensive financial overview.

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Financial Management
Name of the Student:
Name of the University:
Author’s Note

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Executive Summary
The main purpose of the assessment is to formulate a business plan which would be
incorporating a plan to meet the financial needs for the business which is to be established. The
plan of Aunt Hattie is to start a business which would be importing geodes in order for the
business to generate appropriate revenue from conducting the activities of the business. The
business would be creating place utility and selling the product in the market of London. The
analysis would be including income statement and balance sheet showing the financial aspects of
the business. The analysis also includes breakeven and situational analysis so that the viability of
the business can be established.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................4
Intimal Investment for the Business............................................................................................4
Assumption and Sensitivity Analysis..........................................................................................5
Breakeven Analysis\....................................................................................................................9
Income Statement......................................................................................................................10
Balance Sheet.............................................................................................................................13
Cash Flow Statement for the Business (Monthly).....................................................................15
Conclusion and Recommendation.................................................................................................18
Reflection.......................................................................................................................................20
Reference.......................................................................................................................................21

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Introduction
The focus of the assessment is to undertake an analysis on viability of a business plan
which is provided in a case study. The case shows that Aunt Hattie has decided to open a venture
which would be supplying geodes in the country and therefore requires appropriate financial plan
so that the viability of the plan can be realized. The idea of the business is to sell geodes which
would be attracting appropriate income from the activities of the business. Aunt Hattie wants to
set up a business which would be based on importing geodes from Uruguay so that the same can
be sold in Europe. It is the plan of aunt to set up a tie up agreement with one of her colleagues
who has an established business in Uruguay of supply geodes. For establishing the business,
Aunt Hattie would be requiring permit for operating and importing products which can be sold in
the market (McKeever 2016). The main supplier of the business would be Colada Geodes which
is an established business operating in Uruguay. The analysis for viability of the business
undertaking would be including breakeven analysis which would be estimating the minimum
amount for sales which the business must reach so as to continue its operations. The financial
implication of the project is important as it provides indication whether the project would be
lucrative for Aunt Hattie or not. The owner of the business is also of the opinion that if products
are imported in bulk quantities than it would also be attracting discounts which would help the
business to enhance the income which is generated by the firm. In addition to this, it would also
minimize the costs of operations and thereby help in promoting efficiency in the operations of
the business.
The financial plan for the project would be incorporating a forecasted income statement,
balance sheet and statement of cash flow for assessing the revenue and expenses in context of the
project. The business plan would be including assumptions and notes to accounts so that

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different numerical figures which is shown can be justified. The analysis also includes
Sensitivity analysis which would allow Aunt Hattie to make comparison between different
scenarios. In addition to this, time value of the estimated profitability of the business will be
evaluated with the help of Discounted Cash Flow Model (Burns and Dewhurst 2016). In addition
to this, the viability of the project would also be determined with the help of breakeven analysis
showing the level of sales which the business is required to achieve so that it can cover its costs
and thereby proceed towards making profits for the business.
Discussion
Intimal Investment for the Business
In order to establish the new business, the owner would be in need of an amount of initial
capital so that the start-up expenses of the business are met in an effective manner. The plan of
Aunt Hattie is to procure geodes from Colada Geodes which is a dealer operating in Uruguay.
The geodes would be imported and therefore for such a purpose as well, the senior officials of
the company needs to have appropriate cash in hand for assisting the whole set up for the
business. It is also to be noted that the business would be required to handle numerous expenses
and also purchase necessary assets for the smooth operations of the business process
(Brinckmann and Kim 2015). The financial plan which will be formulated for the project would
be including detailed disclosures regarding the different expenses which the owner is required to
bear so that efficiency is preserved in the operations of the entity.
It is to be noted that there are several sources available to the business for raising capital
such as internal sources as well as external sources. In this case, Aunt Hattie had taken an early
retirement from work for which she received an amount of $ 450,000 as compensation for early
retirement. Aunt Hattie wants to invest all of the amount in the new business undertaking of

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geodes. In addition to the capital fund which is provided by the owner, the business would also
be taking a loan of $ 40,000 so that an appropriate capital structure can be formed. One of the
reasons for taking a loan is to take advantage of leverage situations which would also help the
business in reducing the costs. Another major advantage of using debt capital in the capital mix
of the business is that interest payments related to the same are tax deductible. In other words, it
provides tax advantage to a business and therefore considered to be a major source for businesses
to draw finances (Hiduke and Ryan 2013). The determination of capital structure for the entity is
considered to be important as the same is considered to be an important component of financial
plan of a business. The initial capital requirements would be met from the lumpsum amount
which Aunt Hattie would be receiving. There is certain assumption which are taken for
formulating the financial plan of the business which is mainly associated with the preparation of
financial plan of the business (Bridge and Hegarty 2013). The business would be operating on
the idea that it would be supplying geodes which are imported from Uruguay so that the business
is able to create a place utility in the operational process of the business. In accordance with the
financial plan of business, Aunt Hattie needs to undertake certain initial expenses for making the
business operational and also for meeting the initial expenses which is related to the business.
The initial investments in assets for the business would be for refrigerator, development of
websites. In addition to this, the business would also be requiring working capital which is
estimated to be at £ 95,300.58. The capital structure of the business would be enhanced from the
next year as the management of the company is expecting an hike in demand of the products of
the business.

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Assumption and Sensitivity Analysis
In order to formulate a proper business plan, the owner needs to consider all aspects for
the business and then estimate the income and expenses which will be associated with the
business. There are also certain assumptions which needs to be considered for the purpose of
financial analysis of the business plan. The initial investments of the business would be including
marketing and distribution rights as the products are being imported from Uruguay. The
expenses for marketing and distribution rights would be estimated considering each consignment
which is being ordered for the business (Gabler et al. 2017). The expenses would be determined
on the basis of quantity of order made and also the tenure for which the contract is made whether
the same is renewed at any point of time or not.
There is another assumption which is considered which is related with exchange rate of
the currency as the financial projections would be made on the basis of home country currency.
The exchange rate of the currency is subjected to fluctuation depending on numerous factors.
However, in case of the financial projections, the exchange rate is expected not to fluctuate that
much for the ease of the financial plan. In extreme situations, the conversion rate can change and
the same needs to be considered by Aunt Hattie. In case of estimation of volume of sale for the
new venture in terms of value in home currency, the same is considered on estimation basis
keeping the business model of local chocolate retail competitors as the basis (Baliga and
Rodrigues 2015). The analysis of the business prospect needs to consider the fluctuation in the
exchange rate and therefore the same is considered as an assumption so that the financial
forecasting can take place appropriately.
Sensitivity Analysis

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Sensitivity analysis is conducted for the project in order to get a clear understanding of
different scenarios which the business might face when the same has started and the financial
implications of the same in the business undertaking. In other words, the sensitivity analysis
would allow Aunt Hattie to understand how the undertaking would perform financially in case of
different situations (Imai and Yamamoto 2013). The analysis of sensitivity for thee business
project which Aunt Hattie is planning to undertake considers certain assumptions and for which
projections are made which is presented below:
Figure 1: (Sensitivity Analysis for the Business)
Source: (Created by Author)
The above figure shows the best possible price which can be charged for selling the
geodes and also the lowest sale price which can be charged by the business considering the
market demand for the product and how the people react to the new business. The basic
assumption which is made in case of computation which is shown above is regarding the price
and volume which the business would be offering case of good and bad scenarios (Borgonovo

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and Plischke 2016). It is to be noted that the same have a direct impact on the profitability of the
undertaking and thereby it is important in decision making process. As per the current
estimation, £ 35 would be charged for the product in the market of UK but the same can change
for the purpose of maintaining some profit margin or due to inflationary pressure in the market.
In such a situation, the price which will be charged for the geodes is anticipated to be £ 45. This
is done so that the business is able to maintain its profitability and also meet the breakeven point
so that the entity is able to cover its fixed costs. In case the business is able to charge less price
for its products that it should be £ 25 so that the business is able to maintain its profit margin and
at the same time also manage the costs of operations of the business (Zetlin-Jones and Shourideh
2017). It is also possible that the management of the company would want to keep the prices of
the products low so that the management is able to enhance the sales of the products in the
market and thereby create a brand name for itself in the market.
The figure above also shows that the quantity which is to be sold by the business is also a
factor which can be changed depending on the income which the business generates. The
business can sell 3500 units under lower selling volume option or can opt for selling 5500 units
for higher selling volume option. The options can be opted depending on the market situation
and taste and preference pattern of the buyers. Either way, the table above shows that the
decision would have an impact on the income which is generated by the entity. It is uncertain
which situation will the business be facing when it becomes operational and therefore NPV
under each of the options is computed so that viability of the business can be established under
different scenarios (Gan et al. 2014). The above table also shows the fluctuation is sales for the
business under different scenarios and thereby NPV which is computed for the business in case
of different scenarios are also different. The NPV for the project in case of different option is

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shown to be positive which shows that the project is financially viable. Even though the profits
which is generated will be lower in case of lower volume or lower price scenario as represented
by the table, the management would still be making some profits. The table above also shows the
fair value for the business considering different scenarios which the business is facing.
The analysis of different scenarios provides a good idea regarding the good and bad
situations which the business can face in the initial period and also shows whether the business
would be financially stable in that scenario. The analysis gives a clear idea of the sales volume
and sale price for the products which the business would be offering and how the same have an
impact on the income which is generated by the corporate business. Therefore, it can be said that
the project is viable considering the price and volume estimation which is made by the
management of the company.
Breakeven Analysis\
Breakeven analysis is conducted by a business to analyses whether a project can cover its
fixed costs or not and whether the project is financially viable or not. Breakeven analysis shows
the management as to how much sales needs to be achieved by the management so that there is a
situation of no profit no loss (Tanev, Rasmussen and Hansen 2016). The analysis of new venture
which Aunt Hattie is planning to undertake is shown below considering breakeven analysis.
Break even analysis
Particulars Year 1 Year 2 Year 3 Year 4
Total sales £173,400 £320,400 £320,400 £320,400
Total Cost of Goods sold £42,381 £78,088 £78,088 £78,088
Selling expense £2,016 £3,780 £3,780 £3,780
Contribution £129,003 £238,532 £238,532 £238,532
Contribution margin 74.40% 74.45% 74.45% 74.45%
Fixed cost £24,000 £24,000 £24,000 £24,000
Breakeven sales £32,260 £32,237 £32,237 £32,237
Figure 2: (Breakeven Analysis for the Business)

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Source: (Created by the Author)
The above figure shows breakeven analysis for the business which is to be established by
Aunt Hattie. Breakeven analysis is conducted so that it can be ascertained whether the product
which s being imported would have appropriate demand or not. In other words, the analysis
would determine if the business would be able to recover its fixed costs from the sales operations
of the business (Guţă 2014). This is considered to be important as financial viability of the new
undertaking can be established with the such an analysis.
The analysis is demonstrated for a period of 4 years and the sale revenue which is
anticipated from the undertaking is shown to rise from second year. The sale revenue which the
store generates from the second year is shown to be £ 320,400 and the same has remained
constant throughout the three-year period. In a similar manner the contribution of the business is
also shown to be enhance during the period of 2nd year which is natural due to enhancement of
sales of the business. The fixed costs of the business for the period which is considered is shown
to be £ 24,000 and the same has remained constant through out the 4 years period. It is on the
basis of such elements that the breakeven sales which the management aims to achieve is
computed and the same is shown to be £ 32,260 for the first year and thereafter from 2nd year it is
shown to be £ 32,237. This represents the minimum sales figure which the business needs to
achieve so that the costs which are of fixed nature are covered and thereby continue its
operations in the market (Braga, Diaconescu and Naftanaila 2013). The breakeven analysis is
conducted so that the owner can have a clear idea at which capacity the business needs to sell the
geodes so that there is a no profit no loss situation in the business. In addition to this, the
breakeven analysis also gives an appropriate understanding whether the business is appropriate
for making investments.

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Income Statement
The income statement is formulated by the senior officials to get a better idea of the
financial success of the business if the operations for the business is initiated. The income
statement which is formulated by the business shows the revenue and expenses which is
generated by the business during the period. The income statement can show the management of
the company the expenses which can be expected from the operations of the business (Stankov,
Roganović and Marjanski-Lazić 2015). The income statement for the business is shown in the
table which is presented below:
Income Statement
Particulars Year 1 Year 2 Year 3 Year 4
Internet sales £168,000 £315,000 £315,000 £315,000
Sales from Boxes £5,400 £5,400 £5,400 £5,400
Total sales £173,400 £320,400 £320,400 £320,400
Cost of goods sold- internet sales £41,448 £77,715 £77,715 £77,715
Cost of goods sold- boxes £933 £373 £373 £373
Total Cost of Goods sold £42,381 £78,088 £78,088 £78,088
Gross Profit £131,019 £242,312 £242,312 £242,312
Packaging cost Internet sales £26,400 £49,500 £49,500 £49,500
Packaging cost boxes £504 £504 £504 £504
Total Packaging cost £26,904 £50,004 £50,004 £50,004
Total Employee cost £20,400 £20,400 £20,400 £20,400
Rent £3,600 £3,600 £3,600 £3,600
Selling expense £2,016 £3,780 £3,780 £3,780
Depreciation £875 £875 £875 £875
Total Administrative expense £53,795 £77,784 £77,784 £77,784
EBT £77,224 £164,528 £164,528 £164,528
Tax £23,167 £49,358 £49,358 £49,358
Profit £54,057 £115,170 £115,170 £115,170
Figure 3: (Income Statement for the Business)
Source: (Created by the Author)