Introduction to a Financial Plan
You have studied the marketing, production and administrative plans that should be included in a business plan from the previous chapters. This chapter explains the final and the most important part of a business plan, i.e. the financial plan. The forecasted financial requirements and the profitability of the expected business is included in the financial plan.
You have studied the marketing, production and administrative plans that should be included in a business plan from the previous chapters. This chapter explains the final and the most important part of a business plan, i.e. the financial plan. The forecasted financial requirements and the profitability of the expected business is included in the financial plan.
Further, the money expected to invest in the business, cash inflows and outflows
and the daily cash requirements of the business are estimated by a financial plan.
Similarly this shows the expected profit calculated considering the forecasted
income and expenditure of the business for a specific period.
Financial plan is useful for an entrepreneur due to following reasons.
# To decide the amount of funds required for the business.
# To minimize financial problems.
# To identify the business result (profit) of the business at the end of a
specific period.
# To assess the adequacy of the above said business result
Information included in a financial plan are given below.
# Activities and expenses prior to starting the business.
# An estimation of the total investment.
# Statement of expected cash inflows and out flows.
# Calculation of expected business results.
Let’s briefly discuss each of these parts.
Activities and expenses to prior to business startup
There are activities to be completed and expenses to be incurred before starting any
activity. Similarly, before starting a business, certain activities should be done and
expenses should be borne by the entrepreneur. Some such activities and expenses
are given below.
1. Expenses on market survey
One of the main things done before starting a new business is studying the market
relating to the business. We call this a market survey. Expenses on market survey
includes expenses incurred to gather the required data, to analyze them and to
prepare reports relating to the expected business.
2. Expenditure on improving the business premises
The business premises should be arranged to suit the business before starting the
business activities. Expenses that should be incurred with this regard are known as
expenditure on improving the place.
3. Expenditure for searching the raw materials and the equipments
Before starting the business, equipments required to the business should be bought
and installed. Similarly, if the business is a production, entrepreneur should
search for the methods and institutions to get the raw materials and equipments
cost-effectively. Cost incurred to find the information relating to the suppliers
(institutions) of the raw materials and equipments, their prices, etc. come under this
category.
4. Registration Expenses
When starting a business it should be registered at authorized institutions. Further,
for some businesses, a special approval or licenses should be obtained.
5. Other Expenses
All other expenses which are not mentioned above and but are to be incurred when
starting a business come under this category such as Legal expenses, cost of business plan preparation, expenses for the
inauguration ceremony.
