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Entrepreneurship

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Entrepreneurship ­ MGT602
VU
Lesson 30
THE FINANCIAL PLAN
LEARNING OBJECTIVES
1. To understand why positive profits can still result in a negative cash flow.
2. To understand the role of budgets in preparing pro forma statements.
3. To learn how to prepare monthly pro forma cash flow, income, balance sheet, and sources and
uses of funds statements for the first year of operation.
4. To explain the application and calculation of the break-even point for the new venture.
5. To illustrate the alternative software packages that can be used for preparing financial statements.
THE FINANCIAL PLAN
A.
The financial plan provides a complete picture of:
1.
How much and when the funds are coming into the organization.
2.
Where the funds are going.
3.
How much cash is available?
4.
The projected financial position of the firm.
B.
The financial plan provides the short-term basis for budgeting and helps prevent a common
problem-lack of cash.
C.
The financial plan must explain how the entrepreneur will meet all financial obligations and
maintain its liquidity.
D.
In general, the financial plan will need three years of projected financial data for outside
investors.
OPERATING AND CAPITAL BUDGETS
A.
Before developing the pro forma income statement, the entrepreneur should prepare
operating and capital budgets.
1.
If the entrepreneur is a sole proprietor, he or she will be responsible for the
budgeting decisions.
2
In a partnership, or where employees exist, the initial budgeting process may
begin with one of these individuals.
3.
Final determination of budgets will ultimately rest with the owners or
entrepreneurs.
B.
In the preparation of the pro forma income statement, the entrepreneur must first develop
a sales budget, an estimate of the expected volume of sales by month.
1.
From sales forecasts, the entrepreneur will determine the cost of these sales.
2.
Estimated ending inventory will also be included.
C.
Production or Manufacturing Budget.
1.
This budget provides a basis for projecting cash flows for the cost of goods
produced.
2.
The important information in this budget is the actual production required each
month and the needed inventory to allow for changes in demand.
3.
This budget reflects seasonal demand or marketing programs, which can increase
demand and inventory.
4.
The operating budget is an important document, as the pro forma income
statement will only reflect the actual costs of goods.
D.
Operating Budget.
1.
Next the entrepreneur can focus on operating costs.
2.
Fixed expenses (incurred regardless of sales volume) include rent, utilities, salaries,
interest, depreciation, and insurance.
3.
The entrepreneur will need to calculate variable expenses, which may change from
month to month depending on sales volume, such as advertising and selling
expenses.
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Entrepreneurship ­ MGT602
VU
E.
Capital budgets are intended to provide a basis for evaluating expenditures that will
impact the business for more than one year.
1.
A capital budget may project expenditures for new equipment, vehicles, or new
facilities.
2.
These decisions can include the computation of the cost of capital and the
anticipated return on investment using present value methods.
3.
The entrepreneur should enlist the assistance of an accountant.
69
Table of Contents:
  1. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:DEFINITION OF ENTREPRENEUR
  2. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:Possibility of New Venture Formation
  3. ENTREPRENEURIAL PROCESS/START UPS:GOVERNMENT AS AN INNOVATOR
  4. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND:ENTREPRENEURIAL PROCESS
  5. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…)
  6. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):CLIMATE FOR ENTREPRENEURSHIP
  7. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):PROBLEMS AND SUCCESSFUL EFFORTS
  8. THE INDIVIDUAL ENTREPRENEUR:ENTREPRENEURIAL BACKGROUND AND CHARACTERISTICS
  9. THE INDIVIDUAL ENTREPRENEUR (continued…):Personal Values, Work History, MOTIVATION
  10. THE INDIVIDUAL ENTREPRENEUR (continued…):ROLE MODELS AND SUPPORT SYSTEMS
  11. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES:INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES, Minority interests
  12. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):DIRECT FOREIGN INVESTMENT
  13. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):BARRIERS TO INTERNATIONAL TRADE
  14. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):ENTREPRENEURIAL PARTNERING
  15. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):SOURCES OF NEW IDEAS
  16. CREATIVITY AND THE BUSINESS IDEA:METHODS OF GENERATING NEW IDEAS, CREATIVE PROBLEM SOLVING
  17. CREATIVITY AND THE BUSINESS IDEA:PRODUCT PLANNING AND DEVELOPMENT PROCESS
  18. LEGAL ISSUES FOR THE ENTREPRENEUR:NEED FOR A LAWYER, PATENTS
  19. LEGAL ISSUES FOR THE ENTREPRENEUR:TRADEMARKS, LICENSING
  20. LEGAL ISSUES FOR THE ENTREPRENEURS:PRODUCT SAFETY AND LIABILITY, INSURANCE
  21. CREATING AND STARTING THE VENTURE:WHAT IS THE BUSINESS PLAN, PRESENTING THE PLAN
  22. CREATING AND STARTING THE VENTURE (Continued….):WRITING THE BUSINESS PLAN
  23. CREATING AND STARTING THE VENTURE (Continued….):
  24. CREATING AND STARTING THE VENTURE (Continued….):WHY SOME BUSINESS PLANS FAIL, MARKETING PLAN
  25. THE MARKETING PLAN:MARKET RESEARCH FOR THE NEW VENTURE
  26. THE MARKETING MIX:STEPS IN PREPARING THE MARKETING PLAN
  27. THE ORGANIZATIONAL PLAN:DEVELOPING THE MANAGEMENT TEAM, LEGAL FORMS OF BUSINESS
  28. THE ORGANIZATIONAL PLAN (Continued….)
  29. THE ORGANIZATIONAL PLAN (Continued….):THE LIMITED LIABILITY COMPANY
  30. THE FINANCIAL PLAN:OPERATING AND CAPITAL BUDGETS
  31. THE FINANCIAL PLAN (Continued….):PRO FORMA INCOME STATEMENTS, PRO FORMA CASH FLOW
  32. PRO FORMA SOURCES AND USES OF FUNDS:PERSONAL FUNDS, FAMILY AND FRIENDS
  33. PRO FORMA SOURCES AND USES OF FUNDS:COMMERCIAL BANKS
  34. BANK LENDING DECISIONS:SMALL BUSINESS ADMINISTRATION LOANS
  35. SOURCES OF CAPITAL:GOVERNMENT GRANTS
  36. SOURCES OF CAPITAL:PRIVATE PLACEMENT, BOOTSTRAP FINANCING
  37. CAPITAL SOURCES IN PAKISTAN:PROVINCIAL LEVEL INSTITUTIONS, FINANCIAL INSTITUTIONS
  38. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  39. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  40. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  41. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  42. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  43. NEW VENTURE EXPANSION STRATEGIES AND ISSUES:JOINT VENTURES, ACQUISITIONS
  44. NEW VENTURE EXPANSION STRATEGIES AND ISSUES (Continued….):DETERMINING THE PRICE FOR AN ACQUISITION
  45. ENTREPRENEURSHIP & PAKISTAN:GENDER DEVELOPMENT STATUS WOMAN AS AN ENTREPRENEUR IN PAKISTAN