Financial Planning and Risk Management for Medical Equipment Startup

This report provides a financial analysis for a medical equipment startup, detailing the initial investment of 3 million, which includes plant, machinery, and equipment acquisition. It presents a three-year profit and loss forecast based on various assumptions, such as material and labor cost increases, and a growing gross profit margin. The report addresses financial risks, including credit, liquidity, and foreign currency risks, outlining strategies for managing each. It explores different sources of finance, including friends and family, issuing shares, debt capital, and term loans, with a capital mix of 60% equity and 40% bonds. The report also includes a six-month cash flow forecast and concludes with a list of references.

MEDICAL
EQUIPMENT
S
Managing enterprise in the 21st
century

Start up Costs
 Start up cost refers to the costs that
company is required to incur for
starting the business.
 Start up 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.

Profit and Loss Forecast
Forecast for three years on the basis of assumptions and estimates for the
year.

Profit and Loss Forecast contnd..

Profit and Loss Forecast contd..
 Cost of materials used for the equipments will grow at 6% every year
 Labour cost will also rise every year with constant rate of 6%
 Gross profit of the business for the year is estimated at 44% which will be growing at 2%
every year.
 The salaries will remain constant for the coming three years but wages of workers will
grow at 6% every year.
 General expenses, maintenance expenses, utility expenses, rent expenses, travel
expenses and power expenses will grow every year with rate of 6% for three years.
 Business will earn return of 11% in year 1, 13% in year 2 and 16% in year 3

Managing Financial Risks
Credit Risk
 Inability to repay the debt will lead to defaults.
 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 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.
 Exposure to foreign currency will be managed by hedging and forward
contracts.

Sourcing Finance
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.
Issue of shares
 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.
Debt Capital
 Debt capital refers to raising funds from the public by issuing bonds or debentures to the
people.
Term Loans
 Term loans are raised from the bank by borrowing money on the specified terms and
conditions.

Sourcing Finance Contd..
 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.
 The remaining 40% will be raised by issuing
bonds.
 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.

Cash Flow Forecast
• Cash flow statement provides the inflow and outflow of cash of the
business.
• Cash flow statement is prepared for six months for the year one.

Cash Flow Forecast contd..

Cash Flow Forecast contd..
 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 first month and used for purchasing property, plant and equipments.
 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.
 Company will not be required to borrow funds further for running the business.
 There is a sufficient cash fund for running the business smoothly.

References
 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.