Welcome To

1
Welcome To

• Financial Planning

2
Financial Planning

• When it comes to starting and running a
• business, sound Financial Planning can
• mean the difference between success and failure.
• Even a great business idea is worth little
• if you havent got your finger on the
• financial pulse.

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Objectives Of Todays Workshop

• To introduce you to
• The Personal Survival Budget
• How to price your product or service
• How to prepare Break Even levels
• The importance of a cash flow forecast
• The Profit Loss Account

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Choosing The Right Finance

• When you start up a business you have to have
  enough money to pay for
• Capital equipment such as a
• computer, fixtures and fittings, vehicles
• Other start up costs such as stationery,
  marketing
• And enough trading cash to pay bills

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Best Source Of Funding

• Use your own money
• Borrow from bank loan, overdraft
• Family/friends
• Outside investors
• Grants and government support if available

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Using Your Business Plan To Help You Raise Finance

• The bank will want to know
• How you intend to pay off the loan/overdraft
• How you are going to use the money
• How the money will help your business to grow and
  develop

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Using Your Business Plan To Help You Raise Finance

• What other loans/debts you are committed to?
• Your bank should see your business plan including
  a personal survival budget, cash flow forecast,
  projected profit and loss, details of costing,
  pricing and break even analysis

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Best Source Of Funding

• How much do you anticipate your start up costs
  will be?
• How will you pay for this?
• Will you need to obtain money from other sources
  if so which will be your best source of
  funding?

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Start Up Costs

• Office furniture
• Vehicle/tax/licence
• Computer equipment
• Telephone/fax
• Printing/stationery
• Advertising
• Website design

• Legal fees/insurance
• Premises
• Rent in advance
• Refurbishment
• Security
• Fixtures/fittings
• Shop signage

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Personal Survival Budget

• How much do you and/or your family need to draw
  out of your business in order to survive a 12
  month period?
• Unless you include this in your planning then
  your business may not realise enough profit to
  pay you what you need

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Personal Survival Budget

• Mortgage/rent
• Council tax, water
• Gas, electricity
• Insurances
• Food
• Housekeeping
• Entertainment
• Car tax/petrol/exp

• Clothing
• Presents
• TV/other
• Childrens exp
• Savings/holiday
• Loan payments
• Total required ___

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Commonly Used Financial Terms

• Variable Costs - Costs related directly to sales.
  As sales increase, so do variable costs (Also
  known as Direct Costs and Costs of Sale)
• Fixed Costs - Costs which are regarded as
  overheads, not connected to the level of sales
  achieved. Even if there were no sales, fixed
  costs would still be evident

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Commonly Used Financial Terms

• Capital Expenditure - Money spent on longer term
  assets e.g. plant, machinery, cars, computers
• Drawings - Money that the sole trader or partner
  takes out of the business. This needs to cover
  the personal survival budget

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Commonly Used Financial Terms

• Capital Introduced - Money you have injected or
  raised through a grant, loans
• Gross Profit/Margin - Arrived at by taking the
  variable costs from the sales figure
• Net Profit - The money you have made!!
• Arrived at by taking the fixed costs from the
  gross profit. You will pay tax on this.

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Pricing A Product

• For example, for a jewellery maker
• Variable costs 4,000
• Total fixed costs 10,000
• Desired profit 10,000
• Total cost 24,000
• Divided by number of units sold i.e. 5,00
• 24,000/500 48 per item

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Pricing A Service

• For example, for an IT consultant
• Fixed costs 5,000
• Desired profit 40,000
• Total 45,000
• Divided by number of annual productive hours
• (48 weeks x 35 hrs 1680 hrs)
• 45,000/1680 26.80 per hr

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Pricing

• The prices you work out act as a starting point
• You then compare this price with your market
  research and decide upon several options i.e.
  charge more, charge less, sell more, sell fewer,
  reduce outgoings etc

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Break Even

• Break even is possibly the most important part of
  any business plan. The break even point
  determines whether or not you have a viable
  business
• It is the point at which sales cover ALL
  expenses, not just fixed costs

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Profit Forecasting

• Projected Profit Loss Account (Income
  Statement)
• Sales 30,000
• Variable Costs 12,000 (40)
• Gross Profit 18,000 (60)
• Overheads 8,890
• Net Profit 9,110 (before drawings)

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Financial and Management Accounting

• Describes business performance over the year
• and is beneficial to you and other interested
  parties
• eg bank, suppliers, shareholders, employees etc.
• Usually includes
• A profit and loss account
• Cash flow forecast

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Cash Flow Forecasting

• Tracks inflows and outflows of money
• Plan at least 12 months ahead
• Indicate shortfall of cash which will need to be
  funded by borrowings/capital injection
• Banks, lenders unlikely to agree to any
  loan/grant without a detailed cash flow forecast

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John Smith CashflowDO NOT AVERAGE ENTER
ACTUAL AMOUNTS PER MONTH

•   

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Nottingham Business Venture

• FROM THE CASH FLOW IT IS EASY TO SEE WHEN EXTRA
  CASH MIGHT BE NEEDED OR NEGOTIATED.
• N.B. CASH IS NOT PROFIT

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Nottingham Business Venture

• WHEN BUILDING YOUR CASH FLOW
• IT IS USEFUL/ESSENTIAL TO IDENTIFY ANY
  ASSUMPTIONS MADE
• THIS HELPS YOU
• AND,
• GIVES CONFIDENCE TO THE READER