BPK3013

Engineering Economics
& Entrepreneurship
TOPIC 5: Financial Plan

Contents
Introduction to Financial Plan
Projects Implementation Costs/Cost of Project
Sources of Financing
Repayment and Depreciation Schedule
Pro-forma Financial Statements

Income Statement
Balance Sheet
Cash Flow Statement

Introduction to Financial Plan

Also another critical aspect of a Business Plan, as to
ensure that the figures and numbers of your cost,
sales, revenue, profit and others are realistic.
The financial plan basically consist of the following
aspect:
Cost and capital expenditure
Financial sources e.g. your own contribution, bank
loan, hire purchase etc
Cash flow analysis - monthly, yearly, 3 years and so
on
Income statement - yearly, 3 years and so on

Financial Statement:
Break even analysis - how long your business will be
operating before covering all the cost incurred during
the start up

Introduction to Financial Plan

Financial planning is the task of
determining how a business will afford
to achieve its business goals and
objectives. It will determine the
following items:
Cost of project
Working Capital Table
Sources of financing
Loan amortization schedule
Depreciation schedule

Forecasted financial statement

Forecasted cash flow
Forecasted Balance sheet.

Financial Plan - Cost of Project

Cost of project or known as Project
Implementation Cost (PIC) is an initial
capital expenditure needed to start
the business.
Components that will be determined
in cost of project are:
Total Fixed Asset
Total Working Capital
Others Expenditure

Financial Statement:
Unexpected Expenditure

Financial Plan - Cost of Project

Cost of Project

RM

RM

(I) Total Fixed Asset

Machines and Equipments

10,000

Furniture and Fittings

10,000

Vehicles-car

25,000

Renovation

6,000

Signboard

2,000

53,000

Financial Plan - Cost of Project

Cost of Project

RM

RM

(II) Total Working Capital

Marketing Expenditure

3,300

Operational Expenditure

**

10,600

Administrative Expenditure

***

4,800

18,700

Financial Plan - Cost of Project

Financial Statement:
Cost of Project

RM

RM

(III) Others Expenditure

Deposit-Rent

1,000

Deposit-Water & Electricity

300

Registration cost

800

2,100

TOTAL

(IV) Unexpected Expenditure

73,800
(5%)

GRAND TOTAL

Financial Plan - Working Capital

Table

3,690
77,490

Working Capital Table

Type of Expenditure

RM

RM

RM

*
Marketing expense
Promotion (RM800* 3 months)
Traveling (RM300*3 months)

2,400
900

3,300

Financial Plan - Working Capital Table

Working Capital Table
Type of Expenditure

RM

RM

RM

Financial Statement:
**
Operational expense
Raw materials (500* 3 months)

1,500

Utilities (100*3 months)

300

Rent (500*3)

1,500

Labor (2,400* 3 months)

7,200

Maintenance

100

10,600

Financial Plan - Working Capital Table

Working Capital Table
Type of Expenditure
***

RM

RM

RM

Administrative expense
Salaries (RM1500*3 months)
Utilities (100*3 months)

4,500
300

4,800

18,700

Financial Plan Financing

Sources
Financing Sources
No.
1

Item

Total (RM)

Owners Equity
- Working Capital

10,000

Debt: Account Payable (Working Capital)

1,500

Debt: Bank Loan

Financial Statement:

- Fixed Assets (machines, furniture, renovation)

28,000

- Working Capital (Balance)

7,200

- Others expenditure

2,100

- Down payment- Car

2,500

- Unexpected expense

3,690

Debt: Hire Purchase - Car

22,500
77,490

Financial Plan Loan Amortization

Schedule I
Loan amortization schedule I
Total loan
Interest rate

45,000
5%

Payback Years

5 years

Annual interest = 5%*45,000

Annual principal = 45,000/5

2,250
9,000

Total annual repayment

11,250

Total monthly repayment= 11,250/12

938

Financial Plan Loan Amortization

Schedule I
Year

Interest

Principal

Total
repayment

Current
Balance (RM)
45,000

2,250

9,000

11,250

36,000

2,250

9,000

11,250

27,000

2,250

9,000

11,250

18,000

Financial Statement:
4

2,250

9,000

11,250

9,000

5
Total

2,250
11,250

9,000
45,000

11,250
56,250

Financial Plan Loan Amortization Schedule

II
Loan amortization schedule II
Total loan
Interest rate
Payback Years
Annual interest = 4%*22500
Annual principal =225000/5

RM22,500
4%
5 years
900
4,500

Total annual repayment

Total monthly repayment = 5,400/12

5,400
450

Financial Plan Loan Amortization Schedule

II
Year

Interest

Principal

Total
repayment

Current
Balance (RM)
22,500

900

4,500

5,400

18,000

900

4,500

5,400

13,500

900

4,500

5,400

9,000

900

4,500

5,400

4,500

900

4,500

5,400

Financial Statement:
Total

4,500

22,500

27,000

Financial Plan Depreciation

Schedule I
Asset name

Car

Purchase cost

RM25,000

Useful life

7 years (salvage value RM8,000)

Year

Annual
depreciation

Accumulated
depreciation

Book value
25,000

2,429

2,429

22,571

2,429

4,858

20,142

2,429

7,287

17,713

2,429

9,716

15,284

2,429

12,145

12,855

2,429

14,574

10,426

2,429

17,003

7,997 (><8,000)

Annual depreciation =(25,000-8,000)/7

2,429

Monthly depreciation =2,429/12

202

Financial Plan Depreciation Schedule II

Asset name

Machines and equipment

Purchase cost

RM28,000

Useful life

6 years salvage value:RM6,000)

Year

Annual

Accumulated

depreciation

depreciation

Book value
28,000

3,667

3,667

24,333

3,667

7,334

20,666

3,667

11,001

16,999

3,667

14,668

13,332

3,667

18,335

9,665

Financial Statement:
6
3,667
Annual depreciation =28,000-6,000/6

22,002
5,998 (><6,000)
3,667 Monthly depreciation =3,667/12 306

Introduction to Financial
Statement
Prepared to communicate important accounting information to
users.
Four Types of Financial Statements:

o Income Statement/ Statement of Financial

Performance - The income statement shows the
net income or loss incurred within a certain
period of time.
o Owners Equity Statement /Statement of Financial
Position -This statement summarizes the changes
in owners equity.
o Balance Sheet/ Statement of Financial Position -A
Balance Sheet shows companys financial
position of assets, liabilities and owners equity at

a point in time. o Cash Flows Statement -A Cash

Flow Statement summarizes inflows and outflows
of cash for the business.

Income Statement
1.
The income statement reports the results
from operating the business for a period of
time, such as a year.
2.
It is helpful to think of the income
statement as comprising four types of
activities: a. Selling the product.
b. The cost of producing or acquiring the goods or services sold.
c. The expenses incurred in marketing and distributing the
product or service to the customer, along with administrative
operating expenses.

Financial Statement:
d. The financing costs of doing business, for example, interest
paid to creditors and dividend payments to the preferred
stockholders

Income Statement
[Entity] Name of Company
[Title] Statement of Financial Performance
[Period] For the month/year ended 31 December 2005

RM

RM

Revenue

XXX

( Less)

Cost of goods sold

Gross Profit

XXX
XXX

( Less)

Salaries
Rental
Advertising
Water & electricity
Depreciation
Miscellaneous

equals

XXX
XXX
XXX
XXX
XXX
XXX

Net profit (loss)

XXX
XXXX

Income Statement
Income. Includes all the income generated by the
business and its sources.
Cost of goods. Includes all the costs related to the sale
of products in inventory.

Financial Statement:
Gross profit margin. The difference between revenue
and cost of goods. Gross profit margin can be expressed
in dollars, as a percentage, or both. As a percentage, the
GP margin is always stated as a percentage of revenue.
Operating expenses. Includes all overhead and labor
expenses associated with the operations of the business.
Total expenses. The sum of all overhead and labor
expenses required to operate the business.
Net profit. The difference between gross profit margin
and total expenses, the net income depicts the
business's debt and capital capabilities.

Income Statement (cont)

Depreciation. Reflects the decrease in value of capital
assets used to generate income. Also used as the basis
for a tax deduction and an indicator of the flow of money
into new capital.

Net profit before interest. The difference between net

profit and depreciation.
Interest. Includes all interest derived from debts, both
short-term and long-term. Interest is determined by the
amount of investment within the company.
Net profit before taxes. The difference between net profit
before interest and interest.
Taxes. Includes all taxes on the business.
Profit after taxes. The difference between net profit
before taxes and the taxes accrued. Profit after taxes is
the bottom line for any company

Financial Statement:
Pro Forma Income Statement
Aisha Beauty Salon Enterprise
Pro Forma Income Statement
For the year ended 31 December 2009
RM

Sales revenue

RM
90,000*

Financial Statement:
Less: Cost of goods sold

46,800

Gross Profit

43,200

Less: Selling and administrative expense

Administrative (4,800/3 months: 4,800*4)

19,200

Marketing (Refer Pro-forma Cash Flow Statement)

6,000

Others (Refer table on Cost of Project)

2,100

Interest (2,250 + 900)

3,150

Depreciation (2,429 + 3,666)

6,095

36,545

6,655

Net profit

Balance Sheet

The balance sheet provides a snapshot of the firms

financial position at a specific point in time, presenting
its asset holdings, liabilities, and owner equities.
Assets represent the resources owned by the firm.
1. Current assetsconsisting primarily of cash, marketable
securities, accounts receivable, inventories, and prepaid
expenses.
2. Fixed or long-term assetscomprising equipment, buildings,
and land.
3. Other assetsall assets not otherwise included in the firms
current assets or fixed assets, such as patents, long-term
investments in securities, and goodwill.

Balance Sheet (cont)

The liabilities and owners equity
indicate how those resources are
financed.

Financial Statement:
1. The debt consists of such sources as
credit extended from suppliers or a loan
from a bank.
2. The equity includes the
stockholdersinvestment in the firm and
the cumulative profits retained in the
business up to the date of the balance
sheet.

Balance Sheet
Name of Company

Balance Sheet
As at December 31 2005

Liabilities and Owners Equity

Asset
Current Assets
Cash

Current Liabilities
Accounts payable

Accounts receivable
Supplies
Prepaid rent

Notes payable
Accruals
Unearned revenue

Fixed Assets
Land
Building
accumulated depreciation
Less:
Machinery

Non-current liabilities
Loan
Total Liabilities
Owners equity

Total Assets

Total Liabilities and Owners Equity

Pro Forma Balance Sheet

Aisha Beauty Salon Enterprise
Pro Forma Balance sheet

Financial Statement:
As at 31 December 2009
ASET
Current asset
Finished inventory

2,000

Cash

25,450
27,450

Total current asset

Fixed asset
Machines/equipment/others

28,000

- accumulated depreciation

3,667

Book value of machineries/others

Car

25,000

- accumulated depreciation : car

Book value for car

24,333
2,429
22,571

Total fixed asset

45,811

TOTAL ASSET

74,354

Pro Forma Balance Sheet

Aisha Beauty Salon Enterprise

Pro Forma Balance sheet

As at 31 December 2009 LIABILITY
Current liability

3,699

Account payable
Long term liability
Bank loan

36,000

Hire purchase

18,000

Total Long Term liability

TOTAL LIABILITY
OWNER'S EQUITY
Beginning capital
Net profit

54,000
56,607

10,000
6,655

ENDING CAPITAL

16,655

TOTAL LIABILITY AND EQUITY

74,354

Pro Forma Cash Flow Statement

Financial Statement:
Month
A

ITEMS

12

TOTAL

10,000

21,400

32,138

100,000

CASH INFLOW
TOTAL CASH INFLOW

CASH OUTFLOW
TOTAL CASH OUTFLOW

32,600

5,800

5,300

98,900

(22,600)

15,600

26,838

26,838

SURPLUS/DEFICIT

Loan

Short term financing

ENDING CASH BALANCE

18,400

14,213

25,450

25,450

43,500