BSBFIM801 Manage Financial Resources

22 Pages / 5,323 Words Published On: 05-03-2021

Question:

Imagine that you have just started a new business and you wish to convince the bank to finance your enterprise.

1. Using the template at the following web link, prepare a financial plan that includes a cash flow forecast, balance sheet forecast and break even analysis for your new business:

2. In addition to your financial plan attach a report that includes a budget for the first year expenditure of your new business and answer the following questions:

a) Describe the products or services that your business will produce.
b) Identify which type of forecasting technique you will use to develop further financial forecasts.
c) How will you analyse these forecasts?
d) What statutory requirements do you need to consider in preparation of your budget?
e) Describe how you will collect comparative and trend information to support your budget?
f) Explain your negotiation strategy with the bank manager relating to acquiring funding for your business project.
g) Describe the records that you will maintain to ensure up-to-date information about resource allocations and usage
h) How will you report budget performance and expenditure?
i) Explain the risk factors associated with your business idea and the expected returns?
j) Describe how you plan to monitor the budget in the event of deviations.

3. Obtain financial statements from a company already in existence and undertake an analysis of these statements by answering the following questions:

a) Explain the reports that require lodging by this company according to the Australian Security and Investment Commission.
b) Analyse these financial records by applying the horizontal and vertical analysis methods.
c) Explain whether you think that the organisations financial decisions will serve to meet the organisations planned outcomes.
4. Meet with your assessor and imagining that he/she is the bank manager argue a case for financing of your business idea.

Answer:

Introduction:

With the ramified economic changes, every entrepreneur needs to analyse all the internal and external factors before starting up new business. The start-up business which has been undertaken in this report is the café services in Australia. The name of the business would be Cosmos Café which will specialize in offering different types of coffees; pastas, sandwiches, and cutlet. This Cosmos Café will win over the market by developing the core competency in cost leadership and product differentiation strategy.

Part 1:

Financial Plan:

The financial plan of the company is accompanied with the start-up cost, profit and loss and cash flow statement of the company (Conway, 2013).

Start up costing

The Cosmos Café will have to bear the start up costing of AUD $ 964500. This minimum cost which will be required to set up the Cosmos Café restaurant business in Australia.

Cosmos Café
Start up costing
Particular	Amount ($)
1 x Manager; 2 x Sales negotiators; 1 x secretary	(210,000)
Rent/Rates/Insurance of Commercial Business premises	(160,000)
Lease cost of restaurant	(359,500)
Lease of kitchen equipment’s	(300,000)
Selling and Corporate Marketing Costs	(250,000)
Depreciation of Plant and equipment	(15,000)
Head Office Costs	(20,000)
working capital	350000
Total	(964,500)

The start-up cost for the Cosmos café would be AUD $ 964500 which will be 30% financed by the bank and 40% from the private capital and 30% will be invested by the promoters.

Forecasted profit and loss account

The profit and loss account of the Cosmos Café is based on the sales and required expenses estimated for the

Budgeted Profit and Loss Account for Cosmos Café
	2019
Revenues	(Amount in $)
Sales of food	2100000
Other revenues	200000
Total	2300000
EXPENDITURE
Variable Costs	-630000

Fixed Costs
1 x Manager; 2 x Sales negotiators; 1 x secretary	(210,000)
Rent/Rates/Insurance of Commercial Business premises	(160,000)
Lease cost	(359,500)
Lease of kitchen equipment’s	(300,000)
Selling and Corporate Marketing Costs	(250,000)
Depreciation of Plant and equipment	(15,000)
Head Office Costs	(20,000)

Total Fixed Costs	(1,314,500)

TOTAL COSTS	(1,944,500)

PROFIT/(LOSS) FOR YEAR	355,500

Return on investment	37%

Cash flow forecast for the Cosmos café based on the estimated profit and loss account

Year
Particular	2019	2020	2021	2022	2023	2024	2025	2026
Cash inflow	1680000	2268000	2494800	2744280	3018708	3320578.8	3652636.68	4017900.348
Cash outflow of Variable cost	-504000	-680400	-748440	-823284	-905612.4	-996173.64	-1095791.004	-1205370.104
Fixed cost investment	-$ 1,329,500	-$ 1,329,500	-$ 1,462,450	-$ 1,608,695	-$ 1,769,565	-$ 1,946,521	-$ 2,141,173	-$ 2,355,290
Total cash outflow	-$ 825,500.00	-$ 649,100.00	-$ 714,010.00	-$ 785,411.00	-$ 863,952.10	-$ 950,347.31	-$ 1,045,382.04	-$ 1,149,920.25
Cash flow from the business	$ 854,500.00	$ 1,618,900.00	$ 1,780,790.00	$ 1,958,869.00	$ 2,154,755.90	$ 2,370,231.49	$ 2,607,254.64	$ 2,867,980.10
*Present value factor @12%	$ 0.89	$ 0.80	$ 0.71	$ 0.64	$ 0.57	$ 0.51	$ 0.45	$ 0.40
Present Value	$ 762,946.43	$ 1,290,577.17	$ 1,267,531.15	$ 1,244,896.66	$ 1,222,666.37	$ 1,200,833.04	$ 1,179,389.59	$ 1,158,329.06
Total(B)								$ 9,327,169.46

Notes

The total sales of the Cosmos will be accompanied with the 80% of cash sales and 20% of sales will be on credit.

Variable cost will have 80% cash outflow and 20% of the cash outflow will be related to last year.

Variable cost is determined on the basis of the 30% of the total sales (Conway, 2013).

Balance sheet of Cosmos Café

Assets		2019
Current Assets
	Cash	$ 350,000.00
	Accounts receivable	$ 2,000.00
	Inventory	$ 104,889.91
	Prepaid expenses	$ 5,500.00
	Short-term investments
	Total current assets	$ 462,389.91
Fixed (Long-Term) Assets
	Long-term investments	$ 48,710.00
	Property, plant, and equipment	$ 50,000.00
	(Less accumulated depreciation)
	Intangible assets	$ -
	Total fixed assets	$ 98,710.00
Other Assets
	Deferred income tax
	Other
	Total Other Assets	$ -

Total Assets		$ 561,099.91

Liabilities and Owner's Equity
Current Liabilities
	GST PAYABLE	$ 80,544.25
	Accounts payable	$ 5,000.00
	Short-term loans	$ 55,000.00
	Income taxes payable	$ -
	Accrued salaries and wages	$ 200,000.00
	Unearned revenue	$ 6,823.00
	Current portion of long-term debt	$ 25,000.00
	Total current liabilities	$ 291,823.00
Long-Term Liabilities
	Long-term debt	$ 169,277.33
	Deferred income tax
	Other
	Total long-term liabilities	$ 169,277.33
Owner's Equity
	Owner's investment	$ 100,000.00
	Retained earnings	$ -
	Other
	Total owner's equity	$ 100,000.00

Total Liabilities and Owner's Equity		$ 561,100.33

Computation of the breakeven point

Break Even analysis
Particular	2019
Total sales Units sales of 400000	2300000
Variable expenses	690000
Contribution	$ 1,610,000
Contribution per unit	$ 4.03
Fixed cost expenses	$ 964,500.00
Profit and loss account	$ 645,500.00

Break-even point analysis= It is the point at which company will have no profit and no loss in its business.

Break even analysis
Contribution	$ 1,610,000
Fixed cost expenses	$ 964,500.00
BEP	$ 239,627.33

(Conway, 2013).

Part 2:

Financial Report

Products or services:

The start-up business will provide services of restaurant “Cosmos Cafe”. The café will specialized in different types of coffees, pastas, sandwiches, and cutlets are produced

Forecasting technique:

There are several forecasting technique however the best one is using the time-series forecasting, consumer surveys, simple linear regression method and multiple regression method. These techniques will provide financial forecasts for future and will make analyse about financial figure (Finch, 2016).

Analysis of forecasts:

In order to analyse he forecasted data, we could use the following tables.

Time series forecasting: This is a method whereby data for over a period is forecasted and analysed. Time series is an accurate technique which describes regarding

Consumer surveys: these are different types of method for consumer surveys such as questionnaires, interviews and telephonic conversations etc. These are different types of direct conversation with consumers, which discloses financial information (Fern&es, Ferreira, & Moura, 2016).

Simple linear regression method: this technique describes regarding the dependency of one dependent variable over independent variable. In context of forecasting, sales are one of the independent variable and other items are considered as dependent variable (Johnston, & Bate, 2013).

Multiple regression method: In this method more variables are considered while analysing financial figures.

Statutory requirements:

Company needs to comply with the applicable laws such as licensing of the foods and beverage, corporation laws and employment laws to operate new busienss. However, Cosmos Food café needs to set up annual compliance program in its business process to strengthen its legal compliance program.

Budget formulation

A budget is formulated to evaluate futuristic profits or loss for a business in a year. A budget is formed for a month, a quarter or yearly basis. It must contain costs like fixed costs, variable costs, incomes and actuals. While formulating budget, it is essential to implement book keeping system and accounting framework.

Collection of comparative and trend information to support budget:

For making comparative analysis and trend analysis of restaurant business, it is essential to collect information of similar enterprise from online websites. Various government agencies also provide trend information regarding demand and supply of restaurant business. This information will aid in development of budget (Mohd, Idris, & Momani, 2013).

Negotiation strategy to acquiring funding for business project:

Company needs to enter into the strategic alliance with the other organizations and promoters who could provide funding for the busienss. however, there are several angle investors and business organization who could provide funding to Cosmos. Nonetheless, the main negotiation strategy would be to showcase the profitability of company and how well Cosmos will grow in future. The restaurant is a start-up and an initiative to provide homemade coffee and food at low cost price along with good quality. The profits for the proposal as discussed in the budget are good enough to pay back to bank (Rashid, & Ghose, 2015).

Records maintained to ensure up-to-date information about resource allocations and usage

The organisation will implement accounting framework and will maintain books of account, which will keep financial information and all the financial entries to represent the financial figures. Also further reports will be formulated such as cost reports, sales reports etc.

Reporting budget performance and expenditure:

The budget performance and expenditures will be reported through preparation of budgeting report, which will include budget variance technique and such other techniques, which will analyse the variations (Schmidt, Spann, & Zeithammer, 2014).

Risk return analysis:

The risk factors, which are associated with the business idea is that it provides competitive risk, interest rate risk and inflation risk. The expected return for the business idea is to be around 9%.

Budget monitoring:

The budget can be monitored at 15 days interval and can be measured through budget deviation. However, if in case variation in the external factors, project escalation amount could be considered by Cosmos Company in its prepared budget.

Part 3:

Explain the reports that require lodging by this company according to the Australian Security and Investment Commission (ASIC)

Business activity statement and financial reports are to be formulated which includes comprehensive profit and loss statement, balance sheet, cash flow statement and fund flow statement. These reports are to be assessed and reviewed in accordance with Australian security and investment commission (ASIC) (Schmidt, Spann, & Zeithammer, 2014).

Analyse these financial records by applying the horizontal and vertical analysis methods.

The financial records represent that the organisation will be earning good amount of revenues and profits and will also have 37% return on investment.

Horizontal analysis

This analysis is implemented to identify the % change in the budgeted profit and loss of the Cosmos café in one year.

Budgeted Profit and Loss Account for Cosmos Café			% change in the amount
	2019	2020
Revenues
Sales of food	2100000	2310000	0.10
Other revenues	200000	220000	0.10
Total	2300000	2530000	0.10
EXPENDITURE
Variable Costs	-630000	-693000	0.10

Fixed Costs
1 x Manager; 2 x Sales negotiators; 1 x secretary	(359,500)	-395450	0.10
Rent/Rates/Insurance of Commercial Business premises	(300,000)	-330000	0.10
Lease cost	(250,000)	-275000	0.10
Lease of kitchen equipment	(15,000)	-16500	0.10
Selling and Corporate Marketing Costs	(20,000)	-22000	0.10
Depreciation of Plant and equipment	350,000	385000	0.10
Head Office Costs	(964,500)	-1060950	0.10

Total Fixed Costs	(1,559,000)	-1714900	0.10

TOTAL COSTS	(2,189,000)	(2,407,900)	0.10

PROFIT/(LOSS) FOR YEAR	111,000	122,100	0.10

Return on investment	12%	13%	0.10

However, there will be only 10% changes in total turnover, expenses and return on investment. This is because we have set up variation in the data by 10% on yearly basis (Siguaw, & Simpson, 2015).

Horizontal analysis of the balance sheet

Assets		2019	2020	% change in the capital
Current Assets
	Cash
	Accounts receivable	$ 2,000.00	$ 2,200.00	0.10
	Inventory	$ 13,994.54	$ 15,393.99	0.10
	Prepaid expenses	$ 5,500.00	$ 6,050.00	0.10
	Short-term investments		$ -
	Total current assets	$ 21,494.54	$ 23,643.99	0.10
Fixed (Long-Term) Assets			$ -
	Long-term investments	$ 48,710.00	$ 53,581.00
	Property, plant, and equipment	$ 50,000.00	$ 55,000.00	0.10
	(Less accumulated depreciation)		$ -
	Intangible assets	$ -	$ -
	Total fixed assets	$ 98,710.00	$ 108,581.00	0.10
Other Assets			$ -
	Deferred income tax		$ -
	Other		$ -
	Total Other Assets	$ -	$ -
			$ -
Total Assets		$ 120,204.54	$ 132,224.99
			$ -
Liabilities and Owner's Equity			$ -
Current Liabilities			$ -
	GST PAYABLE
	Accounts payable	$ 5,000.00	$ 5,500.00	0.10
	Short-term loans	$ 55,000.00	$ 60,500.00	0.10
	Income taxes payable	$ -	$ -
	Accrued salaries and wages	$ 200,000.00	$ 220,000.00	0.10
	Unearned revenue	$ 6,823.00	$ 7,505.30
	Current portion of long-term debt	$ 25,000.00	$ 27,500.00	0.10
	Total current liabilities	$ 291,823.00	$ 321,005.30
Long-Term Liabilities			$ -
	Long-term debt	$ -	$ -
	Deferred income tax		$ -
	Other		$ -
	Total long-term liabilities	$ -	$ -
Owner's Equity			$ -
	Owner's investment	$ 100,000.00	$ 110,000.00	0.10
	Retained earnings	$ -	$ -
	Other		$ -
	Total owner's equity	$ 100,000.00	$ 110,000.00	0.10
			$ -
Total Liabilities and Owner's Equity		$ 391,823.00	$ 431,005.30	0.10

In case of balance sheet, there will be only 10% changes in all the assets and liabilities. This is because we have set up variation in the data by 10% on yearly basis (Boshyk, 2016).

Vertical analysis

It is the analysis which reflects the % of the one item is based on the particular base item. IN this case, we will take overall turnover of the Cosmos Company as based to make the vertical analysis of the profit and loss account.

Vertical analysis of Budgeted Profit and Loss Account for Cosmos Café
	2019	% change in the amount
Revenues
Sales of food	2100000	0.91
Other revenues	200000	0.09
Total	2300000	1.00
EXPENDITURE		0.00
Variable Costs	-630000	1.00

Fixed Costs
1 x Manager; 2 x Sales negotiators; 1 x secretary	(210,000)	-0.09
Rent/Rates/Insurance of Commercial Business premises	(160,000)	-0.07
Lease cost	(359,500)	-0.16
Lease of kitchen equipment	(300,000)	-0.13
Selling and Corporate Marketing Costs	(250,000)	-0.11
Depreciation of Plant and equipment	(15,000)	-0.01
Head Office Costs	(20,000)	-0.01

Total Fixed Costs	(1,314,500)	-0.57

TOTAL COSTS	(1,944,500)	-0.85

PROFIT/(LOSS) FOR YEAR	355,500	0.15

Note- In this case, the base for the vertical analysis is the total turnover of the Cosmos Company (Solomon, 2014).

Vertical analysis of the Balance sheet

The vertical analysis is undertaken to evaluate the % of the total assets and liabilities based on the total assets (Wei, Same, & Lee, 2014).

Liabilities and Owner's Equity
Current Liabilities
	GST PAYABLE		% base on the total assets
	Accounts payable	$ 5,000.00	$ 0.04
	Short-term loans	$ 55,000.00	$ 0.46
	Income taxes payable	$ -
	Accrued salaries and wages	$ 200,000.00	$ 1.66
	Unearned revenue	$ 6,823.00	$ 0.06
	Current portion of long-term debt	$ 25,000.00	$ 0.21
	Total current liabilities	$ 291,823.00	$ 2.43
Long-Term Liabilities			$ -
	Long-term debt	$ -	$ -
	Deferred income tax		$ -
	Other		$ -
	Total long-term liabilities	$ -	$ -
Owner's Equity			$ -
	Owner's investment	$ 100,000.00	$ 0.83
	Retained earnings	$ -	$ -
	Other		$ -
	Total owner's equity	$ 100,000.00	$ 0.83
			$ -
Total Liabilities and Owner's Equity		$ 391,823.00	$ 431,005.30

Explain whether you think that the organisations financial decisions will serve to meet the organisations planned outcomes.

Yes, the organisation has made appropriate financial decisions and financial techniques, which will meet organisation-planned outcomes. Since, the financial decisions are made considering the forecasting techniques and through budgeting technique (Blahova, & Knapkova, 2011).

Conclusion:

With this it can be concluded that a good business plan requires proper financial budgeting and financial techniques for achieving pre-defined goals and objectives. It is to be assessed that the budget and other documents have made considering the trend information, comparative information and through forecasting techniques. The organisation has made good planning which will be fruitful and would bring profits for the entrepreneur. Hence, it is a planned budget which is deemed to be useful for organisation and for future.

Part-4

Dear Sir,

It is in relation to the funding of the Cosmos café for its business operation. After preparation of the budget and other documents on the basis of the internal and external factors and the economic growth of the Australia, It has been considered that the trend analysis information, comparative information and through forecasting techniques have shown that Cosmos will have profitable busienss and will grow effectively. The return on capital employed of company will also be too high which will add value for the invested capital. If the Cosmos Café is funded then it will surely provide good return and if you agree then we will also offer some of the part of the shares in future when the busienss will make profit to compensate your bank loan with the shares. It will also align your interest with the Cosmos development (Blahova, & Knapkova, 2011).

References

Blahova, M., & Knapkova, A. (2011). Efective Strategic Action: From Formation to Implementation. International Conference on Economics, Business & Management, 2(1), 61-65.

Boshyk, Y. ed., (2016). Business driven action learning: Global best practices. Australia: Springer.

Conway, J.B., (2013). A course in functional analysis (Vol. 96). 2^nded, Australia: Springer Science & Business Media.

Fernces, C., Ferreira, M. & Moura, F., (2016). PPPs—True Financial Costs & Hidden Returns. Transport Reviews, 36(2), pp.207-227.

Finch, B. (2016). How to write a business plan. 2^nd ed, Australia: Kogan Page Publishers.

Johnston, R.E. & Bate, J.D., (2013). The power of strategy innovation: A new way of linking creativity & strategic planning to discover great business opportunities. 33(2), pp.207-227.

Mohd, W., Idris, S. & Momani, R.A., (2013). Impact of environmental dynamism on marketing strategy comprehensiveness & organizational performance. International Journal of Business & Management, 8(9), p.40.

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Schmidt, K.M., Spann, M. & Zeithammer, R., (2014). Pay what you want as a marketing strategy in monopolistic & competitive markets. Management Science, 61(6), pp.1217-1236.

Siguaw, J.A. & Simpson, P.M., (2015). A marketing plan for marketing instruction: A satirical look at student comments. In Creating & Delivering Value in Marketing (pp. 129-133).4^th ed Australia: Springer International Publishing.

Solomon, M.R., (2014). Consumer behavior: Buying, having, & being (Vol. 10). Engelwood Cliffs, NJ: 3^rd ed, Australia: Prentice Hall.

Wei, Y.S., Samiee, S. & Lee, R.P., (2014). The influence of organic organizational cultures, market responsiveness, & product strategy on firm performance in an emerging market. Journal of the Academy of Marketing Science, 42(1), pp.49-7