Financial Plan Details

Technopreneurship 101

Main Components of a Financial Draft of a Business Plan

• Bases & Assumptions (from Marketing, Technical & Organizational Plans)
• Funding Requirements (CAPEX, Pre-Operating, Working Capital & Cash)
• Pro-forma Financial Statements
a) Profit & Loss (Profit = Sales Revenues – Total Costs
b) Balance Sheet (Total Assets = Total Liabilities + Equity)
c) Cash Flow (Cash Beg + Inflows – Outflows = Cash Ending)
• Financial Ratios
a) Profitability Ratio = (NIAT / Sales Revenue) x 100%
b) ROI (for 5-yr study period) = (Average NIAT 5yrs / Investment) x 100%
c) Payback Period = 1 / ROI (in years)

DO NOT REPRODUCE – SEEK PERMISSION from PROF. MARVIN I. NOROÑA, MBA PIE
 Bases & Assumptions (5-year study period)
1. Volume and Pricing Assumptions (from Marketing Plan)
• Volume  % of computed target market size (survey results = % WTB x MOE
x population of your potential market based PSA considering target segment
demographics); increasing over the spread of 5 years
• Pricing rule: price> COGS (cost to produce); vis-à-vis competitor or
substitute products (assume price increases after the 1st year in FS)
• Annual Sales Revenue Budget = Volume (#s) x Price per unit (TOPLINE)
• Marketing Budget = selling & promotion expenses for the 5-year study period
2. Costs of Goods Sold (COGS from Technical Plan)
• DM (bill of materials = BOM costing including packaging, labels, brochures)
• DL  (cost of labor of people directly creating the product) Product-specific
• FOH  (all other indirect costs – labor & supplies & utilities in order to run
the production scheme) Activity-based

Bases & Assumptions (5-year study period) con’t - 1

3. Production Scheme (decision on production design of Technical Plan)
• This answers the question, “How the product will be made in commercial
quantities?”
• Pure trading scheme (including re-packing) is not allowed (for study
purposes); start-up company should have value-adding operations (not a
hallow entity) and not just exclusive distributorship or franchising.
• Options: all-in factory mode (end-to-end internal production) ; outsourcing
mode (ordering modules & sub-assemblies from outside suppliers and
contractors + internal final assembly, testing & packaging); or hybrid mode
(producing modular component/s + ordering other parts and/or sub-
assemblies).

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Bases & Assumptions (5-year study period)
4. Capital Expenditures (CAPEX)
 Resources
• Identify the Capital (P) Requirements in terms of Production facilities classified
into Land & Building (if any, including renovation), Machines & Equipment,
Furniture & Fixtures, and other fixed assets (e.g. vehicles, handling equipment,
etc.);
• Determine the Capital (A) Requirements in terms of facilities, office equipment,
other fixed assets (in total Php) and will not be a part of the Income Statement.
• This depends on the choice of a production scheme for product realization
(commercial production) and the type of business firm (corporation, sole
proprietorship or partnership)
 Depreciation Schedule
• Determine the total CAPEX (in Php) as part of the external Funding Requirement
(from investors) > > > CAPEX amount depends on the selected production scheme
for the start-up company.
• Estimate the life in years of each fixed asset classification and compute an annual
schedule of depreciation charges by dividing the total cost of each fixed asset
classification by the life in years; the resulting sum product will be reflected as the
annual total depreciation charge in the Income Statement under General Selling &
Administrative Expense (GSAE)

Bases & Assumptions (5-year study period)

5. General, Selling & Administrative Expenses (GSAE)
 Considered as Fixed Costs (i.e., not based on level of sales activity)
 Refer to the accounts illustrated in the Excel template (in annual expenses)
• Salaries (managers & staff based on the Organizational Structure (include 13th mo. pay)
• Employee Benefits (uniform, insurance, allowances, medical benefits, etc.)
• Selling & Promotion  based from Marketing Plan (cost of 5-year programs)
• Shipping Expense  estimated from Marketing Plan
• Depreciation (computed from funding requirements as Capital Assets ÷ 5 years)
• Rent Expense (if no land &/or building was purchase as CAPEX)
• Support Services (janitorial, security, building maintenance, etc.)
• Maintenance, Repair & Operating (MRO) supplies needed in running the business
• Permits, Licenses, Legal Retainer Fees (different from pre-operating expenses)
• Others (miscellaneous, sundries)
 Interest Expense – can be separated from GSAE
• computed based on LT Debt and amortization schedule & interest rate)

DO NOT REPRODUCE – SEEK PERMISSION from PROF. MARVIN I. NOROÑA, MBA PIE
 Bases & Assumptions (5-year study period)
5. Profitability
 Resources  Determine the Capital (A) Requirements in terms of facilities,
office equipment, other fixed assets (in total Php) and will not be a part of
the Income Statement.
 Depreciation (as explained) = Capital Assets (P + A) ÷ 5 years
 Subtracting GSAE from Gross Margin, compute for Earnings Before Interest
& Taxes (EBIT)
 Subtract Interest Expense (if with LT Debt Capital) from EBIT to get Net
Income Before Tax (NIBT)
 Subtract Taxes (tax rate depends on the type of start-up business firm
assumed in the Organizational Plan) from NIBT to get Net Income After Tax
(NIAT)
 Compute Profitability Ratio (Per Year) = NIAT / Sales Revenue x 100%

FUNDING REQUIREMENTS
To determine Capital Structure and Source of Funds
I. Capital Assets (production + admin support) - refer to Resources
II. Pre-operating Expenses (bldg. plans, permits, business permits & licenses,
legal fees, filing fees, 3 months’ rental deposit – estimated)
III. Working Capital (to fund operations with no cash inflows/sales revenues yet)
= [COGS 1st yr/12 + (GSAE 1st year – Depreciation)/12] x # of months without
commercial activity yet (say 2 or 3 months depending on target market
and distribution strategy)
IV. Cash Requirement
 Compute the total funding requirements (for sourcing / investment)
 Determine Capital Structure (Equity + LT Debt)  ratio ???
 If with Long-Term Debt  be compute amortization (loan repayment) &
annual interest expense

DO NOT REPRODUCE – SEEK PERMISSION from PROF. MARVIN I. NOROÑA, MBA PIE
 FINANCIAL STATEMENTS (5-year study period)
1. Income Statement (Profit & Loss Statement)
https://www.youtube.com/watch?v=QDXA8EPlo1U
2. Balance Sheet [ Total Assets = Total Equity + LTD ]
Total Equity = original investment + retained earnings
Retained Earnings = NIAT minus Dividends
https://www.youtube.com/watch?v=CheXrnjJgJo
3. Cash Flow = inflow – outflow (beginning & ending balances)
https://www.youtube.com/watch?v=Zgp2cw7sSGo

FINANCIAL RATIOS
• Profitability Ratio (per year) = NIAT ÷ Net Sales Revenue x 100%
Average (for the 5-year study period) = Total NIAT ÷ Total Net Sales Revenues x 100%
• Gross Profit Ratio = Gross Profit ÷ Net Sales Revenue x 100%
• Return on Investment (ROI) = sum of the 5-year NIAT ÷ Investment x 100%
(target preferably at least 33%)
• Payback Period = reciprocal of ROI (preferably 3 years)  number of years
required to fully recover total investment.
• Break-Even Analysis (the amount of sales revenue to cover all fixed expenses)
= Total Fixed (or GSAE) ÷ [1 – (Variable Costs/Sales Revenues)]

DO NOT REPRODUCE – SEEK PERMISSION from PROF. MARVIN I. NOROÑA, MBA PIE