7 Deposit Rental 2,700 2,700

TOTAL 18,007.75 10,501.40 2,700 31,209.15

6.0 FINANCIAL PLAN

Effective financial management is crucial for a business's profitability and viability.

Consider the following common topics for your formal business strategy. To properly manage
your enterprise funds, create a realistic budget that includes start-up expenditures and
ongoing operational costs.

6.1 Start-up Cost

Estimate expenses for one-time actions such as opening a new facility, introducing a
new product or service, expanding into a new market, or implementing a new procedure.
Current facility or begins a new operation following much investigation and debate.

START-UP COSTS RM
Capital Expenditure: Administrative
Land & building 100,000.00
Business fixtures and equipment 10,501.40
Office Renovation 3,000.00
Capital Expenditure: Operations
Machinery 760,000.00
Factory renovation 150.00
One-Time Start-up Expenditure
Installation of fixtures/equipment 10,501.40
Starting inventory cost 20,000.00
Office Supplies 315.00
Legal and professional fees 10,000.00
Advertising for opening 3,000.00
Other Pre-Operations Expenditure
Deposit (rent, utilities, etc.) 6,000.00
Business Registration & Licenses 200.00
Other Expenditure 770.00
Start-Up Costs 924,437.80

35
6.2 Working Capital

Working capital refers to the initial expenses needed to fund everyday operations until
the firm makes its first sale. The quantity of working capital depends on the firm's ability to
produce enough revenue to pay its short-term needs.

WORKING CAPITAL (MONTHLY) RM FIXED VARIABLES

Marketing
Signage - 2,500.00
Advertising 6,000.00 -
Review - 3,000.00
Administrative
Salaries and wages 15,077.75 -
Rent 11,500.00 -
Utilities - 3,500.00
Office Supplies 10,501.40 -
Insurance 500.00 -
Office maintenance - 150.00
Operations
Salaries & wages 15,077.75 -
Factory maintenance 4,750.00 -
Purchases - 72,000.00
Other Expenditure
Bubble wrap 250.00 -
Telecom bill 120.00 -
Packaging box 400.00 -
Total Working Capital - 64,176.90 81,150.00
Total Working Capital Required 1 month 145,326.90
Working Capital + Contingencies 5% 152,593.25

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6.3 Start-up Capital and Financing

Total start-up capital includes both the initial cost and working capital required to launch
an enterprise. New ventures typically rely on the entrepreneur's equity investment as their
primary source of financing. Equity contributions might take the form of cash or assets. The
second most prevalent type of financing is a term loan. Commercial banks often provide long-
term funding. Term loans can finance both fixed assets and operating capital. The loan length
and interest rate are determined by the needed loan amount and current interest rate.

ESTIMATED START-UP CAPITAL 924,437.80

FINANCING
Equity: Share & Venture Capital RM1,000,000.00
Loan -
Annual Interest Rate 0%
Loan Duration (years) -

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6.4 Cash Flow Statement

A cash flow pro-forma statement shows predicted cash inflows and outflows over a
specified time. Pro forma cash flow statements typically cover three to five years. However,
extended durations

Depending on the initiatives being conducted, this may be necessary at times. The pro forma
cash flow statement must include the following information:

• Cash inflows - the expected quantity of cash entering the firm.

• Cash outflows refer to the predicted quantity of cash leaving the firm.
• Cash shortfall or surplus is the difference between inflows and outflows.
• Cash position refers to the beginning and ending cash balances for a specific time.

CASHFLOW PRO FORMA STATEMENT

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
(RM) (RM) (RM) (RM) (RM)
CASHFLOW
Share Capital 1,000,000

Loan -

Cash Sales 919,680 965,664 1,011,648 1,057,632 1,103,616

TOTAL CASH 1,919,680 965,664 1,011,648 1,057,632 1,103,616

INFLOW
CASH
OUTFLOW
Administrative 31,209.15 31,209.15 31,209.15 31,209.15 31,209.15

Expenditure
Marketing 97,455 97,455 97,455 97,455 97,455
Expenditure
Operations 45,668 49,768 53,868 57,968 62,068
Expenditure
Other
Expenditure
Pre-Operations
Deposit (rent, 96,000
utilities, etc.)

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Business 200

Registration &
Licenses
Insurance & 50 50 50 50 50

road Tax for

Motor Vehicle
Other Pre- 770

Operations
Expenditure
Fixed Assets
Purchase of 100,000

Fixed Assets -
Land & building
Purchase of 760,000

Fixed Assets -
Others
Loan Payment
(Principal)
Interest on Loan
TOTAL CASH 1,131,352.15 178,482.15 182,582.15 186,682.15 190,702.15

OUTFLOW
CASH 788,327.85 787,181.85 829,065.85 870,949.85 912,913.85

SURPLUS
(DEFICIT)
BEGINNING 0 788,327.85 1,575,509.70 2,404,575.55 3,275,525.40

CASH
BALANCE
ENDING CASH 788,327.85 1,575,509.70 2,404,575.55 3,275,525.40 4,188,439.25

BALANCE

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6.5 Income Statement

The next step in developing a financial plan is to prepare the pro forma income statement
which shows the expected profit or loss for the planned period, usually for three to five
consecutive years.

• Cost of goods manufactured (production cost)

• Gross profit
• Net profit

The overall production expenses incurred in creating the final goods are referred to as the
cost of goods made, or production costs. It covers all expenses, including direct labour, direct
materials, manufacturing overheads, and any difference between the work-in-progress's
beginning and final balances. The gross margin obtained after subtracting the cost of items
sold from sales is known as the gross profit. It shows the profit before other operating
expenses are subtracted. The difference between gross profit and operating expenses for the
specified time is known as net profit (or net loss).

CASHFLOW PRO FORMA STATEMENT

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
(RM) (RM) (RM) (RM) (RM)
Raw Materials 72,000 84,000 94,000 106,000 116,000

Labour 41,300 45,400 49,500 53,600 57,700

(Salaries, EPF &
SOCSO)
Factory 96,000

Overhead
Depreciation of 760,000 719,000 678,000 637,000 596,000
Fixed assets
(Operations)

Total Factory 856,000 719,000 678,000 637,000 596,000

Overhead
Production Cost 1,825,300 1,567,400 1,499,500 1,433,600 1,365,700

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 PRO-FORMA INCOME STATEMENT
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
(RM) (RM) (RM) (RM) (RM)
Sales 919,680 965,664 1,011,648 1,057,632 1,103,616
Less: Cost of 20,450 22,950 24,450 26,950 28,450
Sales

Gross Profit 899,230 942,714 987,198 1,030,682 1,075,166

Less:
Expenditure
Administrative 31,209.15 31,209.15 31,209.15 31,209.15 31,209.15
Expenditure
Marketing 97,455 97,455 97,455 97,455 97,455
Expenditure
Other 6,000 6,000 6,000 6,000 6,000
Expenditure
Business 200
Registration &
Licenses
Insurance & 50 50 50 50 50
Road Tax for
Motor Vehicle
Other Pre- 770
Operations
Expenditure
Interest on loan
Depcriation of 760,000 719,000 678,000 637,000 596,000
Fixed Assets
(Administrative)
Total 895,684.15 853,714.15 812,714.15 771,714.15 730,714.15
Expenditure
Net Profit 3,545.85 88,999.85 174,483.85 258,967.85 344,451.85
Before Tax
Tax 0 0 0 0 0
Net Profit 3,545.85 88,999.85 174,483.85 258,967.85 344,451.85
After Tax
Accumulated 3,545.85 92,545.70 267,029.55 525,997.40 870,449.25
Net Profit

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6.6 Balance Sheet

The pro forma balance sheet displays the company's financial status at a certain
moment in time regarding its assets and financing arrangements, whereas the pro forma
income statement displays the financial performance of the business for the intended period.
Between three and five years are covered by the pro forma balance sheet.

PRO-FORMA BALANCE SHEET

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
(RM) (RM) (RM) (RM) (RM)
ASSETS
Fixed Assets
(Book Value)
Land & Building 100,000 100,000 100,000 100,000 100,000

Equipment 10,501.40 10,501.40 10,501.40 10,501.40 10,501.40

Current Assets
Inventory of Raw 72,000 84,000 94,000 106,000 116,000

Materials
Inventory of 919,680 965,664 1,011,648 1,057,632 1,103,616
Finished Goods
Cash Balance
Other Assets
Deposit
TOTAL ASSETS 1,102,181.40 1,160,165.40 1,216,149.40 1,274,133.40 1,330,117.40

Equity
Share Capital 1,000,000

Retained 102,181.40 1,160,165.40 1,216,149.40 1,274,133.40 1,330,117.40

Earnings
Liabilities
Loan Balance
TOTAL EQUITY 1,102,181.40 1,160,165.40 1,216,149.40 1,274,133.40 1,330,117.40
& LIABILITIES

42