* Calculations use average data for Russia
Step 9. Business plan section: Financial plan
So here we go to the biggest and most important part of your business plan, which contains financial information about the project, determines its cost, and will help investors, business partners, and you assess the new venture's ability to generate revenue. Money in an amount sufficient to make payments on credit obligations (payment of interest or dividends, repayment of loans).
When describing the financial results of a project, be sure to include the terms, estimates, and assumptions you rely on. Indicate whether the cost estimate was prepared by you or by an independent appraiser. Remember that logically based forecasts will help you set qualitative goals and achieve quantitative goals.
Please note: if you are planning to open a large (resource-intensive or manufacturing) enterprise and / or if you are going to take out a loan or a loan for its development, the calculations given in these tables will not be enough for you.In this case, it is highly advisable to seek help in drawing up a business plan, and especially its financial part, from experts. As a result, you will receive a well-written document with sound economic calculations that will make a favorable impression on investors and creditors.
In the section with financial information can be included by law approved formsaccounting and financial reporting. As a rule, three main documents are given: a profit and loss statement, which reflects the company's activities by periods, a cash flow plan (Cash Flo), a balance sheet, which allows you to assess the financial condition of the enterprise at a certain point in time.
From the income statement, you can find out if your business is making a profit and how much, minus all existing expenses. Although this document does not give an idea either about the value of the company (as opposed to the balance sheet of the enterprise), or about the cash that it has.
This data is contained in the cash flow statement, which shows whether the company has enough cash to pay current liabilities (settlements with suppliers, payment of wages to employees, payment of taxes and other obligatory payments, payments on loans and borrowings, etc.). ).
However, in order to find out the real value of the company, the balance of the enterprise is necessary - the main form financial statements. It contains information about all liabilities and assets of the company in value terms. Simply put, the asset of the balance sheet contains information about the property and cash of the enterprise, and the liability contains information about the sources of this property and funds. The total assets and liabilities in the balance sheet must match.
Describe in detail the proposed funding sources and arrangements, loan repayment responsibilities, the guarantee system that you can provide, and indicate the need for additional financial resources, if any. Take Special attention a description of the current and predicted situation in the market and in the economy, offer a few various options developments and ways to resolve possible crisis situations.
Prepare forecast and current financial statements, present the financial history of the company and its profit plan, assess the risks that investors and creditors may face, and indicate ways to minimize them.
Information on risks and guarantees is often placed in a separate subsection, which describes external and internal factors that affect a particular type of risk, as well as measures to protect against possible financial losses of the enterprise and the lender. Information about what problems may arise during the implementation of the project and how the entrepreneur is going to solve them is of great interest to investors.
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The depth and analysis of the riskiness of the enterprise depends on the type of activity and the amount of expected losses. Risk is understood as the probability (threat) of loss by the enterprise of part of its resources, loss of income or the appearance of unplanned expenses resulting from the production and financial activities of the company.
There are three main types of risk: commercial, financial and industrial.
Commercial risk reflects the unreliability of income associated with the competitive environment and sales problems.
financial risk due to insufficient project financing, inability or unwillingness of the company to repay borrowed funds and interest on them.
Production risk associated with factors of poor product quality, unreliability of equipment, lack or weakness of supply systems for raw materials and materials, as well as with the ecology of production.
Provide a clear description of project costs and use of funds.
If you have already taken any loans for the development of your project, indicate the terms and conditions of repayment. You can do this in the form of a loan repayment schedule and interest payments.
Also provide information on working capital, indicating changes during the loan term and the proposed tax payment schedule, attach calculations of the main indicators of solvency and liquidity, as well as forecasts for the effectiveness of the project.
Please note that the timing of your forecasts must match the timing of the loans or investments you are requesting.
In fact, you should reflect for several periods (monthly, quarterly, yearly) possible fluctuations in the exchange rate of the ruble against the dollar, the list and rates of taxes, inflation of the ruble, capital formation from own funds, loans, issuance of shares, the procedure for repaying loans and loans.
Business Plan: Project Performance Indicators
Evaluation of the effectiveness of an investment project will help the investor determine how much the price of the acquired asset (that is, the amount of investments) corresponds to the expected income, taking into account all the risks of the project. Thus, he will be able to understand whether it is advisable to invest in the project.
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If you registered as an individual entrepreneur, then when writing this section, use the following indicators, which are determined based on the cash flows of the project and its participant: net income, net present value, internal rate of return, need for additional funding, indexes of profitability of expenses and investments, payback period.
net income is the profit, net of taxes, received by the company for a certain period of time. Net present value (NPV, NPV - Net Present Value) is the sum of the expected stream of payments, reduced to the cost of this moment time. Usually this important indicator is calculated when evaluating the economic efficiency of investments for future payment flows.
net income and net present value characterize the excess of total cash receipts over total costs for a given project. In order for an investor to recognize your project as effective and want to invest their money in it, it is necessary that the NPV of your enterprise be positive. Accordingly, the higher this indicator, the higher the investment attractiveness of the project.
Internal rate of return(profit, profitability, return on investment, Internal Rate of Return - IRR) determines the maximum acceptable discount rate at which funds can be invested without loss for the owner. This indicator, which is often abbreviated as IRR (Internal Rate of Return), denotes the discount rate at which the net present value of an investment project is zero.
The simple payback period of an investment project is the period of a simple return on the total net income from the project in which the capital was invested. For an investor, this indicator is not of great interest, since it does not indicate how much and for what period he will be able to receive additional profits.
But discounted payback period(Discounted payback period) denotes the period for which the funds invested in this project will provide the same amount of profit, discounted (given by the time factor) to the present moment, which could be received from another investment asset during the same time.
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Need for additional funding- this is the maximum value of the absolute value of the negative accumulated balance from investment and operating activities. This indicator indicates the minimum volume external funding project required for its implementation. For this reason, the need for additional financing is also called risk capital.
Yield Indices(profitability indexes) reflect the "return" of the project on the funds invested in it. They can be calculated for both discounted and undiscounted cash flows. This indicator is often found in comparison of investment projects that differ from each other in terms of costs and income streams. When evaluating effectiveness, they usually use:
- cost return index- the ratio of the amount of accumulated revenues to the amount of accumulated costs;
- discounted cost return index- the ratio of the amount of discounted cash flows to the amount of discounted cash outflows;
- return on investment index– increased by one unit the ratio of PV to the accumulated volume of investments;
- discounted investment return index is the ratio of NPV to the accumulated discounted volume of investments increased by one.
Return to the list of instructions for writing a business plan
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Dear entrepreneurs, economists and graduate students of universities, dear colleagues and friends, I am glad to present you my latest work, namely an example of a business plan with calculations, in which everyone will find something useful for their direction. In a series of posts on this topic, I will explain in detail and in an understandable language how to prepare the main tables of a business plan or almost any investment project.
A short video on what my Financial Model in Excel looks like
Do not look for analogues, in free access They are not here!
Consider, as an example of a business plan, I will be my financial model, calculations wherein run in a regular fileExcel 2010, where there are no macros, no pivot tables, no complex charts. Accordingly, you do not need to be an advanced user of Excel at all. The minimum that you need to know to work with the financial model, I tell you, and believe me, it will be very simple, and most importantly, useful for your future work in Excel.
So, building a financial business model (whether it be production, sale of goods or provision of services), we will perform the following steps and get the corresponding tables and simple visual diagrams for them:
1. We will determine the rates of taxes and fees, and think about what options for organizing and developing a business should be considered.
2. We plan the inflation rate and determine the discount rate (to understand what it is, I recommend watching my half-hour).
3. Write out the launch costs ( investment investments) and calculate the depreciation of the acquired fixed assets (equipment) on a straight-line basis (if you do not have start-up costs, then just skip this block).
4. Distribute the launch costs among the sources of financing: own funds, funds of partners and investors, loan funds (for a loan, we will predict monthly payments).
5. We will build the organizational structure of the enterprise (personnel management), draw up a schedule for employees to leave in order to clearly understand that the staff is planned correctly and in sufficient numbers, and also calculate the payroll taking into account accruals and determine the periods for hiring employees.
7. Consider a plan for operating expenses and plan fixed and variable costs by months, taking into account, if necessary, the purchase of materials or products with prepayment or deferred payment.
8. Competently form the selling price for each product or service, taking into account competitors, desires potential clients and own needs.
9. We will build a sales forecast for three years, taking into account the expected discounts and seasonal market fluctuations, and also, if necessary, take into account sales of our goods (services) with a deferred payment (in installments) up to 5 months.
10. Let's define the break-even point both in quantitative terms (how many sales should be made per month to reach the break-even threshold), and in monetary terms (how much money is needed to go, as they say, "to zero").
11. Let's analyze the forecast of profits and losses (income and expenses), thereby determining how profitable the business we are planning.
13. Let's summarize the forecast balance for billing period(for 3 years).
14. We will build a schedule for the implementation of a business project, broken down by main stages.
In the model, we will be able to perform the calculation for three options for business development. This may be important for those who choose between several types of equipment, or want to see how the financial component of the business will change under the pessimistic, optimistic and baseline scenarios. But if more than one option is enough for you, then you will greatly simplify your work in building a financial plan.
I will not only show you an example of a business plan with calculations, but also tell you in detail how and with what logic each of the tables is built. And if you have a need to analyze own business and find narrow places in it, or you are just opening your own business and preparing a business plan for presentation to an investor (creditor), then the tables offered in the model will be quite enough for you. After you prepare them, it will be enough to add only a descriptive part and the organization plan and business vision will be completely ready for you. Well, if you are writing a graduation project, then there is more than enough information for you here to complete the financial part. Moreover, the format of the tables that I propose in my model fully complies with the UNIDO standard, and earlier my model already had a successful practical use not only in the preparation of graduation projects, but also in the defense of startups, including in Europe.
As for the time that you will need to prepare the model, it’s hard to say for sure, because. it all depends on how complex project you consider what input data you have already collected and how much time you have available. But I can say that in the presence of all the necessary initial data, it is quite possible to calculate the investment project in one day!
Here is a list of the initial data that you will need to plan a business in the model I propose (planning period - 3 years):
- macro indicators: inflation forecast for the billing period or actual inflation of past years and the average rate on bank deposits (we will simplify the calculation of discounting as much as possible);
- the rate and frequency of payment of income tax or a single tax for entrepreneurs, the VAT rate (for VAT payers), the rate of customs duties (for the import of imported equipment, goods or raw materials), the rate of accruals on the payroll fund (percentage of accruals levied from enterprises, and not income and social tax on employees));
- a complete list of fixed assets in which investments will be invested, with a monthly breakdown of costs;
— estimated amounts and dates of receipt of funds from partners, investors or banks, as well as investor remuneration rates and interest on loans;
- a list of employees and their estimated salaries or rates;
- a list of marketing activities with a breakdown of costs by months;
- a list of operating (fixed and variable) costs with a monthly breakdown;
- the price of competitors (maximum and minimum) and the price that the consumer is willing to pay (maximum and minimum) for each product (service) or group of goods;
- sales forecast for each product (service) or group of goods, broken down by months;
- the main stages of the project implementation, indicating the start and end dates for each stage.
As you can see, not so much initial data is needed, while the project will still be worked out deeply and competently.
How does my financial model work for business planning. Everything is very simple. Fill in only the "Initial data" sheet, choosing the block you need using standard Excel filters. Data must be entered only in cells that have a yellow fill. In cells with a green fill, data is selected from the lists proposed by the system. Attention, drop-down lists cannot be changed, because part of the lists is involved in the formulas of the model. The rest of the cells do not need to be touched without special need, tk. they have formulas or are purely informative. For ease of printing, all the main tables are placed on individual sheets, in which absolutely all data is pulled automatically. For those who do not work confidently in Excel, I closed the cells with formulas with sheet protection, which does not have a password and you can easily remove it if necessary. How to do this, I will explain in detail to you in one of the following posts.
Last update of the model 12/20/2018.
If you have any questions, write to E-mail:
A model with a flexible planning horizon from 3 to 10 years is presented
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Introduction
1. Business plan (financial section)
1.1 Business planning as an element of the economic policy of the enterprise
1.2 The main financial and economic indicators of the enterprise
1.3 Financial section of the business plan
2. Evaluation of the financial indicator
Conclusion
Introduction
One of the specific methods of planning economic activity in a market economy, another form of government of its necessity and inevitability is the preparation of business plans.
Business planning is different from management planning, because The entrepreneur is responsible for his own business. An entrepreneur must have a good idea of the main components of his business - finance, production, marketing, management.
The business plan reflects the most important areas of the enterprise's activities - what to produce, from what and how, where and to whom to sell, how to attract consumers, what resources (finance, personnel, equipment, raw materials) are needed and what financial results should be expected from the project. If we summarize all areas of activity, we get the main types of plans: strategic, production, financial, marketing.
Business plan is a document that describes the main aspects of the future enterprise, analyzes all risks, determines ways to solve problems, and answers and ultimately answers the question:
IS IT WORTH INVESTING MONEY IN THIS PROJECT AND WILL IT BRING INCOMES THAT WILL RECOVER ALL EXPENDITURES OF FORCES AND FUNDS?
There are five main functions of a business plan:
1. Business plan as a basis for developing a business concept.
2. Business plan as a tool for assessing the actual results of the enterprise.
3. Business plan as a means of attracting investment
4. Business plan as a means of team building.
5. Business plan as a tool for analyzing one's own activities.
Comparative analysis business plan and the real state of affairs at certain stages of activity serves as a means of rethinking one's business experience and general settings on the nature of the business.
Each section of the business plan should have access to the financial section, i.e. contain figures, data by which the corresponding position of financial plans can be calculated.
1. Business plan (financial section)
1.1 Business planning as an element of the economic policy of the enterprise
A business plan is one of the main documents that determines the development strategy of an enterprise. It allows you to solve a number of tasks of strategic management:
Rationale economic feasibility selected goals and directions of development of the company;
· Calculation of expected financial results of activity - volume of sales, profit, return on invested capital;
· Determining the need for resources to achieve the goal;
· Planning organizational structure companies;
· Analysis of the market and determination of the main directions of marketing activities within the framework of the project;
· Planning of the main stages of production.
The functions that a business plan performs determine the requirements for it. It must be business document, written in strict formal language, with exact numbers, quotes, substantiation of calculations. Business plan - This is an advertisement for your business. You must, with its help, convince the investor (to buy) your project, i.e. it should attract attention, arouse interest and desire to act.
The business plan allows those who get acquainted with it to understand your intention and serves as a basis for attracting various resources, and this circumstance requires that the business plan should have a generally accepted structure and format.
Typically, a business plan consists of the following sections:
1. Introduction or summary of the business plan. Here is a general short information about the project, on the basis of which a potential investor can conclude whether he is interested in this project or not.
2. Description of the company (enterprise). This section introduces the potential investor background information about the company - line of business, form of ownership, capital, founders, legal and actual address, bank and other details, names and surnames of managers, contacts and telephone numbers.
3. Analysis of the situation in the industry. A brief description of the state of affairs in the industry or certain areas of business and an explanation of the prospects for the development of the project in terms of its compliance with changes in the external environment.
4. Product description (goods, services). A detailed description of the products offered by the company for production and sale within the framework of the project, including a technical description and consumer properties.
5. Marketing plan. Must include general description market and competition, the main elements marketing strategy companies - the target market and its segments, product promotion directions, price calculations.
6. Production plan. The main objective of this section is to determine the needs of the project in fixed and working capital and show the investor the possibilities of ensuring the production of the planned volume of products.
7. Investment plan.
8. Organization and management. The successful implementation of a business plan largely depends on the organization of the business and the management of the company or project, how the activity of the enterprise will be organized, what will be the structure and form, ownership, how many personnel are needed.
9. Financial plan. Should summarize all the previous sections, presenting them in the form of a structure of income and expenses for a certain period of time. According to the financial plan, the investor judges the attractiveness of the project.
10. Applications. This section includes documents relevant to the case - the results of market research, specifications equipment, expert opinion about products, information about licenses, patents, technologies, trade marks, contracts with suppliers and intermediaries, samples of advertising and information materials. Sometimes the attachments include personal CVs of the manager and other key project figures.
1.2 The main financial and economic indicators of the enterprise
One of the main goals of any business is to make a profit.
But before talking about profit, it is necessary to produce products and sell them. In turn, for the production and sale of products, it is necessary to use resources that have their own cost - raw materials and materials need to be bought, staff need to be paid wages, i.e. bear the costs.
Before you start your own business, you need to think about whether it will be profitable and what needs to be done for this. To do this, it is desirable to imagine - what and how the funds will be spent, where they will come from, i.e. you need to plan income and expenses, the difference between which will be profit or loss. All commercial organizations must pay income tax. There is a legal definition of what counts prime cost, i.e. production and sales costs, and what profit. This is regulated by an official document.
The main types of costs incurred by any organization in the production and sale of products: material costs, labor costs, deductions for social needs, depreciation, other costs.
General costs should have been called production cost, but in accounting and taxation, cost refers to strictly defined costs. At cost, i.e. for what is not taxed can be attributed to all the costs that enterprises incur in the production and sale of products. At the same time, for which expenses (advertising, hospitality and travel expenses) have standards that determine what proportion of the funds spent can be included in the cost of production. Therefore, it is necessary to distinguish between the concepts costs and costs.
In order to consider the following question, it is necessary to recall the structure of the balance sheet and select the concepts of profit and loss from the report;
The column (assets) contains items that reflect the acquisition of a company committed in different time and still possessing some value for the reporting period. The column (liabilities) contains articles that reflect the sources of funds for the acquisition of everything that is in the column (assets). Non-current assets include such hard-to-measure things as the reputation of the enterprise, patents and licenses, the book value of fixed assets, long-term financial investments. The essential characteristic of these assets is that they are of a long-term nature: a good reputation of the company is acquired by long-term efforts of the team and lasts for a long time, the building has been in operation for decades. With current assets otherwise. Inventory in warehouses, accounts receivable, money, short-term bank deposits - are in constant motion. Capital and reserves often referred to as equity, tk. is the capital that the owners have invested in the business.
To analyze the effectiveness of the enterprise, it is necessary to combine equity and long-term liabilities into the concept (invested capital). These balance sheet concepts are enough to discuss the performance of an enterprise, if we add a few concepts from the profit and loss account to them.
Profit and loss scheme
Greater number financial ratios built on the basis of the balance sheet and income statement and income statement relate to the issue of the efficiency of the enterprise and represent the relationship between these indicators.
Examine the rate of return on total excises, the turnover of total assets, return on sales, return on equity.
1.3 Financial section of the business plan
FINANCIAL SECTION - one of the most important sections of the business plan, as it is the main criterion for accepting an investment project for implementation. The financial plan is necessary to control the financial security of the investment project at all stages of its implementation and reflects the upcoming financial expenses, sources of their coverage and expected financial results, as well as the results of calculations that are carried out during its development in a certain sequence.
The financial section of the business plan includes several main documents: the balance sheet of the organization, the profit and loss plan, the cash flow forecast, the operating plan, the income and expenses plan. These documents are of a planning and reporting nature, such planning is carried out on the basis of a forecast of the future activities of the company within a certain period of time, and the data given in these documents are used to analyze the financial condition of the company.
Let us briefly describe the main documents included in the financial section of the business plan:
Operational plan- reflects the results of the interaction of the company and its target markets for each product on the market for a certain period, this document is developed by the marketing service at the company. The set of indicators presented in the operational plan helps to demonstrate to the company's management what market share is occupied by the company for each product and what it is expected to win. The structure of the income statement is relatively simple, it usually includes revenue from the sale of goods, production costs, tax and other deductions. Based on these indicators, the profit remaining at the disposal of the company after the payment of dividends is calculated, according to this section, you can determine whether a particular product makes a profit, compare different products in terms of profitability in order to determine the feasibility of further production. Thus, the ultimate goal of this document is to show how profit will change and form during the first and second years on a quarterly basis and then on a yearly basis. Plan - a cash flow statement shows how much cash is at the disposal of the enterprise and what is the company's need for them. This report is compiled as a summary result of the company's activities for all types of goods and services, its structure, in particular, includes planned and actual investments in the company's activities for the reporting period. The final document of the financial plan is the balance sheet, its peculiarity lies in the fact that it does not reflect the results of the company's activities for a certain period, but fixes strong and weak sides in terms of finance this moment. Any single element of the balance sheet on its own means little, however, when all these elements are considered in relation to each other, it allows one to judge the financial position of the company. It is easy enough to write such a report: it shows how the initial capital (source of debt + equity) will be received and how it is supposed to be spent. The balance sheet projections for the next period should take into account the initial balance sheet, as well as the specifics of the company's development and the results of its financial and economic activities.
An important component of the financial section of the business plan is definition sources of capital, necessary for the operation of the company. This part of the financial plan is relevant for both small firms just entering the business, and for large enterprises that need additional capital inflow. Data on sources of capital are linked to the use of funds with a specific indication of the methods and directions of use of capital.
You can also imagine the following version of the structure of this section of the business plan in terms of R&D.
1. Current state. Describe the current status of each product or service and explain what needs to be done to bring it to market. It is useful to indicate what skills an enterprise has or should have in order to perform these tasks. If possible, list the customers or end users who are involved in the development and testing of products and services. It is necessary to indicate the current results of these tests and when it is expected to receive finished products.
2. Problems and risk. Highlight any major perceived problems in the design of the product under development and approaches to solving them. Assess the possible impact of these issues on product development costs and time to market.
3. Product improvement and new products. In addition to describing the developments and initial products, indicate the work on their improvement planned to maintain their competitiveness, and work on the creation of new products and services that can be offered to the same group of consumers. Indicate the consumers who take part in these developments and their opinion about the prospects of the latter.
4. Expenses. Submit a cost estimate for R&D, including salaries, material costs, etc. Please note that underestimating this estimate can affect the expected profitability, reducing it by 15-30%
5. Property issues.
List any patents, trademarks, copyrights you own or intend to acquire. Describe any contracts or agreements that give you exclusivity or ownership of designs or inventions. Describe the impact of any outstanding issues, such as ownership disputes, on the competitive edge you have.
It should also be noted that this area of activity requires significant capital investments, the availability of highly qualified specialists and managers, a high degree of production specialization, small firms, just mastering the business, are often content with the use of existing developments, certain production technologies and goods. The business plan also includes risk assessment and insurance. Any plan does not provide a guarantee of success. A condition for the skillful management of the resources provided is to take into account the possible risk of the project. Risk is the probability of getting positive result in business activities. Here, the size of the risk (possible losses in the implementation of the project), the probability of the risk, the degree of controllability of a specific risk are set.
AT financial section of the business plan, the investment risk is also calculated, of course, the business plan will look much more attractive if it reflects the investor's gain in terms of minimizing losses and obtaining the planned profit, therefore, in planning it is necessary to provide an overall assessment of commercial risk, to predict to what extent the risk is associated with investments in the project. Along with the need to predict risk in terms of the plan, the head of the enterprise must have knowledge of the basic patterns of risk reduction:
Effective forecasting and systematic planning of the company's activities,
Insurance and self-insurance,
Hedging futures transactions,
Issue of options, diversification.
The financial justification of the project is a criterion for making an investment decision, so the development of a financial plan should be carried out very carefully. The goals and objectives of forecasting the financial and economic activities of an investment object are, first of all, in assessing the costs and results expressed in financial categories.
The financial section of the investment project consists of the following items.
1. Analysis of the financial condition of the enterprise during the three (and preferably five) previous years of its operation.
2. Analysis of the financial condition of the enterprise during the preparation of the investment project.
3. Forecast of profits and cash flows.
4. Evaluation of the financial efficiency of the investment project.
Let us dwell briefly on each item of the financial section of the investment project.
The financial analysis previous work enterprise and its current position is usually reduced to the calculation and interpretation of the main financial ratios that reflect the liquidity, solvency, turnover and profitability of the enterprise. Calculate the financial ratios that characterize each planning period, then analyze the ratios over time and identify trends in their change. An investor, before investing in a specific project, analyzes its functioning (activity) in order to assess the future state and development prospects, and the effectiveness of investments. The indicators (coefficients) used to analyze and evaluate an investment project are not limited to those discussed below, since there is no such set of them that would fully meet the objectives and satisfy all the goals of the analysis.
The predicted financial indicators and project efficiency obtained as a result of calculations can be presented in the business plan in the form of a table.
Project performance indicators
Solvency ratios are used to assess a firm's ability to meet long-term obligations. Turnover ratios make it possible to evaluate the effectiveness of operating activities and policies in the field of prices, sales, and purchases. Profitability indicators are used to assess the current profitability of an enterprise participating in an investment project.
The values of the corresponding indicators must be analyzed in dynamics for a number of previous years and the main indicators should be compared by years. The list of coefficients is determined by the specifics of the project.
The forecast of profits and cash flows in the process of implementing an investment project and assessing the financial efficiency of the project include:
Estimation of the cost of capital attracted for the implementation of the investment project;
Drawing up a consolidated balance of assets and liabilities of the project;
Profit/loss and cash flow forecast;
Evaluation of financial performance indicators of the project.
The evaluation of the financial efficiency of the project is carried out taking into account the principle of "cost of money over time". This principle states: “A ruble is now worth more than a ruble received in a year,” i.e., each new cash flow received in a year has a lower value than an equal cash flow received a year earlier. Therefore, all inflows and outflows received at different stages of the project implementation are reduced to today's (current) value by discounting. This allows you to compare them and calculate the main indicator of the financial efficiency of the project - NPV (Net Present Value) net current (or present) value.
To analyze the feasibility of project implementation, it becomes necessary to forecast inflation rates for the entire period of validity (by periods) of the investment object. In this case, it is desirable to accept several alternative forecasts - pessimistic and optimistic.
When forecasting the financial and economic activities of the project in the business plan, the net profit from the project and the cash flow are calculated, a project balance sheet is compiled (taking into account the assets and liabilities of the balance sheet). These are the three basic forms of financial reporting. Based on all the calculations, three documents are developed:
1. plan of income and expenses;
2. plan of cash receipts and payments (cash flow);
3. plan-balance of assets and liabilities.
Based on the assessment of the effectiveness of the investment project, investors and other participants make decisions on investing, withdrawing from the project, adjusting its parameters, implementation conditions, possible ways to improve efficiency, etc.
2. Evaluation of the financial indicator
ARR, NPV=NPV, GNI
In practice, any enterprise finances its activities, including investment, from various sources.
Simple (average, calculated) rate of return on investment(ARR) shows which part of the investment costs is recovered in the form of profit during one planning interval. This indicator is also called the accounting return on investment (ROI). It focuses on evaluating investments based not on cash receipts, but on the firm's income. It is calculated as the ratio of the average value of the company's income according to financial statements to average investments:
where EBIT(1-H) is income after taxes, but before interest payments;
ARR for 1 year - 6.0
ARR for 2 years - 10.6
The value of assets at the beginning and end of the period, we take as the residual value from 1 table, respectively, at the beginning of the period this is the first amount, i.e. from 6 months of the first year, and at the end of the period, these are, respectively, the amounts from 12 months of the first year for calculation for 1 year, and from 12 months of the second year for calculation for 2 years.
Net present value(NPV) corresponds to the NPV (net present value) indicator, which is used in evaluating the effectiveness of investment projects according to the UNIDO methodology and is a discounted indicator of the value of the project, defined as the sum of the discounted values of income minus costs received in each year during the period project life:
where E is the desired rate of return (discount rate);
I0 - initial investment of funds (investment costs),
CFt is the net cash flow at the end of period t.
To calculate NPV, you need to find the net cash flow = proceeds from the sale of products and services - Payments (production and other operating costs), in this case it turns out: "Tours sold, with VAT" - ("Costs for trips, with VAT" + " Payroll "+ Social contributions, 26%" + "Rent with VAT" + "Office maintenance, communications, with VAT" + " Advertising company, with VAT "+" Depreciation deductions "(calculations in the application)
For the rate of return E \u003d 50%, it turns out:
1. 3641,68/1,5 1 =
2. 3641,68/1,5 2 = 625,735
3. 3641,681,5 3 = 258,674
4. 3641,68/1,5 4 = 250,775
5. 3641,68/1,5 5 = 99,4265
6. 3641,68/1,5 6 = -3,6214
7. 3641,68/1,5 7 = -128,45
8. 3641,68/1,5 8 = 53,9422
9. 3641,68/1,5 9 = 26,6908
10.(1253,1+29,36)/1,5 10 = 22,2397
11.(1910,7+29,36)/1,5 11 = 22,4296
12.(1208,7+29,36)/1,5 12 = 9,54224
13.(963,3+29,36)/1,5 13 = 5,10032
14.(1047,7+29,36)/1,5 14 = 3,68943
15.(693,5+29,36)/1,5 15 = 1,65067
16.(1240,2+29,36)/1,5 16 = 1,93284
17.(725,7+29,36)/1,5 17 = 0,76631
18.(-70,6+29,36)/1,5 18 = -0,0279
For the rate of return E = 10%, it turns out (table 5, line 13):
1. (1267,1+29,36)/1,1 1 = 665,314
2. (1378,5+29,36)/1,1 2 = 656,797
3. (843,7+29,36)/1,1 3 = 370,248
4. (1240,2+29,36)/1,1 4 = 489,465
5. (725,7+29,36)/ 1,1 5 = 264,63
6. (-70,6+29,36)/1,1 6 = -13,143
7. (2224,1+29,36)/1,1 7 = -1995,2
8. (1353,1+29,36)/1,1 8 = 1142,54
9. (996,7+29,36)/1,1 9 = 770,912
10. (1253,1+29,36)/1,1 10 = 875,932
11. (1910,7+29,36)/1,1 11 = 1204,65
12. (1208,7+29,36)/1,1 12 = 698,859
13. (963,3+29,36)/1,1 13 = 509,372
14. (1047,7+29,36)/1,1 14 = 502,453
15. (693,5+29,36)/1,1 15 = 306,545
16. (1240,2+29,36)/1,1 16 = 489,474
17. (725,7+29,36)/1,1 17 = 264,63
18. (-70,6+29,36)/1,1 18 = -13,143
At E=50% NPV= 352.967
At E=10% NPV= 5428.48
To calculate NPV, we enter the numbering of months, starting from the first month of receipt of revenue (table 5). Since the formula uses summation over the range of months of the period (t), subtotals are calculated in Table 5 for the rate of return (E=50%), and for the rate of return (E=10%). Having calculated CF, we can now find
We take investment costs as the residual value at the beginning of the period, since this is precisely the amount of the initially invested funds.
Internal rate of return(INR) - corresponds to the internal rate of return on investment IRR (internal rate of return). Technically, it represents the discount rate at which the project breaks even, meaning that the net present value of the cost stream is equal to the net present value of the income stream (NPV=0) . Thus, is defined as a solution to the equation:
Internal rate of return (NPV=0) - 63.15%
To calculate the IRR, we select the value of "E" in the previous calculation, so that the NPV is as close to 0 as possible. To do this, we substitute the value "E" in the calculations (Table 5, bottom lines) and evaluate the result.
Conclusion
So, we can draw conclusions from this work.
The documents included in the financial section of the business plan are of a planning and reporting nature, such planning is carried out on the basis of a forecast of the future activities of the company within a certain period of time, and the data given in these documents are used to analyze the financial condition of the company.
An important component of the financial section of the business plan is the determination of the sources of capital necessary for the activities of the company. This part of the financial plan is relevant for both small firms just entering the business, and for large enterprises that need additional capital inflow. Data on sources of capital are linked to the use of funds with a specific indication of the methods and directions of use of capital.
The purpose of the financial section of the business plan is to formulate a goal, to present a comprehensive and reliable system of projections that reflect the expected financial results (outcomes) of the company's activities. If these data are carefully prepared and convincingly supported, they become one of the the most important criteria assessment of business attractiveness.
When it comes to a new or newly existing business, it is important to put the essence of the financial plan in the proper perspective. In such situations, of course, there are no historical financial data that could serve as a basis for estimates. PI, respectively, the future values of the indicators are hidden in the fog of uncertainty. However, even in these circumstances, more attention to detail can make this section much better than if it were just guesswork. When working on the financial section, the following considerations may be helpful.
In many ways, the financial plan is the least flexible part of the business plan. Although actual values indicators will change, each plan must contain similar documents (or tables and graphs), and each document must be drawn up in standard form. The statistics given should provide enough information to enable the reviewer to be convinced that the entrepreneur understands not only his own business, but also how his activities are combined with those of entrepreneurs engaged in the same business.
The specifics of the financial statistics presented are to some extent dictated by the circumstances. Some companies choose a year as their reporting period, while others make reports for every quarter, every month, every week, and even every day. However, the information provided must meet a number of requirements.
It is necessary to state in a clear and concise manner all the assumptions that have become the basis of the presented designs. Without this, the figures given will not have of great importance. The fact is that only after careful consideration of such assumptions is it possible to assess how reliable they are. Since the rest of the financial plan essentially follows from these assumptions, they are an essential part of it. Profit statement projections should be included (usually for the first five years, but in any case up to a minimum of three years). These reports most often reflect at least quarterly totals for the first two years, while for the period from the third to the fifth years are more often given by quarter or by year.
The plan should include the current balance sheet of the company (for new firms, the balance sheet at the start of operations), as well as projections of balance sheets at the end of each year (usually for a period of five years, but in any case - no less than three years).
It is useful to include other financial projections. For example, a "break-even" analysis showing the level of sales required to cover costs at a given scale of production. Additional financial data may also be prepared to reflect the contribution of certain types of products and services to the overall results of the company.
In addition, for an existing business that intends to expand its operations or acquire some other company, it is advisable to show financial data for past years. Depending on the age and nature of the business, the reviewer will generally be willing to look at the company's earnings and balance sheets for at least the past three years. In addition, depending on how long ago the last fiscal (fiscal) year ended, he may require interim financial statements, possibly for the last quarter ended.
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That is a business plan. Now is the perfect time to tackle finance as part of your business plan.
It's time to deal with money.
Finance is the most important part of a business plan.
Financial section of the business plan is in last place simply because in this section we will use almost everything that we planned and analyzed in the previous sections. The financial part of the business plan should show us if our business idea is financially viable or not, and if it's worth it. We have planned and considered many things, including how to produce, how much money to save for salaries, etc. But now we have to check whether these plans are sustainable or not.
What should be included in the financial section of a business plan?
- Brief summary of the financial plan.
- Description of sources of initial financing.
- Key financial assumptions.
- Key financial indicators.
- ROI chart.
- Displaying the profit / loss forecast.
- Display cash flow forecast.
- Balance forecast.
1. Brief summary of the financial plan
As always, the summary is written at the end (after other parts of the financial plan) and covers the most important features financial plan. Keep in mind that if you plan to use the business plan to get financial resources from an investor, then this section can become the most readable part of the business plan, since it briefly describes the main financial indicators. And this is the main thing that interests any investor.
2. Funding sources
Here we describe all the sources of financing in the beginning of the business. In this part of the table, you just need to indicate what finances you will invest, which ones you will borrow from relatives and friends, how many loans you need from banks, etc. Provide a brief explanation.
3. Key financial assumptions
In this subsection, you should come up with some forecasts based on the analysis of the financial sector in the country and internal analysis. You will need to specify the following assumptions:
- Changes in interest rates.
- How many days will you defer payment?
- On what schedule will you make payments?
- How much to tax?
- What will be the costs?
- What % of sales will be on credit?
All these assumptions will be used for further analysis. So make sure these assumptions are as accurate as possible. Look for information on the Internet, the State Statistical Office, the Central Register, banks, etc.
4. Key financial indicators
This is a simple chart, already described in the business plan summary, and which gives us a picture of what the sales volume, gross margin movement and net profit of the enterprise will be. In the sales strategy, we have already estimated the sales and costs associated directly with this sale, i.e. direct costs. This data should be used here. In the spreadsheet, also collect overheads such as payroll, rent, operating costs… The sum of these direct and overhead costs is the total amount costs per year. Gross margin will be the difference between revenue and total cost sales (direct costs), and net profit will be calculated by subtracting all expenses and taxes from total sales revenue.
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Make a chart where you place sales and expenses as shown below.
Key financial indicators of the business plan
5. ROI chart
In simple terms, profitability is the amount of money that is needed to cover all the expenses of the enterprise. Profitability analysis will tell us how many units of products or services we have to sell to cover costs (so as not to operate at a loss). The purpose of this analysis is to find the ROI point, which will indicate at what level the business will be profitable and at what unprofitable. You need to know the direct and variable costs of your business.
For example, if total expenses are $20,000.00 and the retail margin percentage is 16.67%, the breakeven point would be $20,000.00 / $0.1667, or $120,000.00. This means that you need to have an income of 120,000.00 rubles per month to cover all expenses and not incur losses. In a business plan, it is recommended to present this graphically, as shown below.
Financial plan - Sales and cost schedule
6. Profit/Loss Forecast
In this subsection, you must short description and a profit/loss tabular view that will cover all costs. That is, you just need to make a table with forecasts of sales (income) and costs (expenses) to calculate profit / loss.
7. Cash flow analysis
In this subsection of the financial plan, you should display a cash flow chart that will show you (and the investor too) how cash will move in your business. Give a brief comment on the results of the analysis.
Cash flow tells us how much money we are currently able to spend on a business. What expenses can be: raw materials for production, purchases of products for enterprises retail, salaries for employees, loan repayments, financing… If there is no cash, you will not be able to purchase raw materials for production or products for sale. We won't pay salaries to employees, and we won't have the money to pay our loan installments, we can't finance business growth…etc.
Again, notice that there are businesses that make a profit. But this profit is paper, and they go bankrupt because they do not have enough money. This result is due to some of the following points:
- Entrepreneur's uncontrollable expenses. Spend more than you have cash flow. Here we are talking about cash, not income, because there may be income, but there is no cash.
- The company operates without cash flow analysis.
For example, we may have a business income of 100,000.00 rubles, 50,000.00 of which you receive over the next 3 months. So we now have 50,000.00 rubles in cash. The item is being sold at a vendor for 80,000.00 and we are unable to re-sell. At the same time, we will not be able to meet the demand of consumers, and sales will begin to decline.
Cash flow is formally the movement of cash in or out of the business cycle (i.e. cash inflow and outflow), which effectively determines the solvency of a business.
Cash flow analysis is the study of the cycle of cash flow and cash flow in your business.
To summarize, let's look at everything that can affect cash flows:
- Initial cash.
- Sales (for each month or an estimate of sales in the first month and the percentage of sales growth from month to month).
- Cost of goods sold; % of sales can serve as a cash flow analysis.
- Selling on credit - % of consumers who buy on credit.
- The number of days before receiving deferred payments.
- Profitability -% of sales.
- The initial inventory balance is the amount of supply you buy before you start selling.
- Months for which there is an item in stock - the number of months.
- Primary debts are the amount of money you owe at the beginning of the analysis.
- Primary expectations - the amount of money that we expect to receive. For beginners, it is zero.
- Days to pay bills - the number of days after which you must pay your bills.
Before you begin your cash flow analysis, you must complete the Sales Forecast and Estimate section. Because without it, you do not have the data from point 2. What is also important is what percentage of total sales is on credit, as well as the period for which the money will be transferred to cash. On the other hand, for qualitative analysis cash flows, you also need to know the timing of payment of obligations.
The illustration below shows the cash flow analysis for the first year.
Cash flow in the financial section of the business plan
It can be seen from the figure:
- Total cash inflow. This is all the cash that comes into the business, both from the sale and from other sources.
- Total amount of cash outflow. This is the money for the current month to buy, pay fees, wages…
- Cash balance at the end of the month. This refers to how much money you have at the end of the month in cash and, accordingly, what is the input element in the next month.
- Monthly cash flow. The red color shows the cash flow for the month and indicates whether we spent more money in the current month than we received.
- Profit at the end of the month.
It is interesting to note two things:
In April, July, October and November we have a negative cash flow, but a profit is realized.
In January, where we have positive cash flow, we take losses.
This tells us that profits and cash flows are not directly dependent on each other. Therefore, we have positive cash flow when there are losses and negative cash flow when there are profits.
8. Balance forecasts
In this section, we briefly list the main indicators of the balance sheet. The balance sheet is a check on the financial position of a business, and most financial lending institutions will give this section the most attention. The balance sheet contains the assets of the enterprise, as well as liabilities and personal capital.
financial planning- is the planning of financial resources and cash funds of the enterprise.
The need for financial planning as a special area of planned activity is due to the relative independence of the movement of funds in relation to material elements.
The object of financial planning are financial resources.
Purpose of financial planning- solvency forecasting and financial stability enterprises. Planning of financial resources and investments guarantees the fulfillment of obligations to the budget, creditors and shareholders, provides financing for entrepreneurial activities.
The objectives of financial planning are:
Providing the necessary financial resources for operational, investment and financial activities;
Determining the ways of effective investment of capital, the degree of its rational use;
Identification of on-farm reserves for increasing profits through the economical use of funds;
Establishment of rational financial relations with the budget, banks and contractors;
Observance of the interests of shareholders and other investors;
Control over the financial condition, solvency and creditworthiness of the organization.
Principles of financial planning:
The principle of compliance - financing of current assets should be planned mainly from short-term sources. At the same time, for the modernization of fixed assets, long-term sources of financing should be attracted.
The principle of constant need - in the planned balance of the enterprise, the amount of working capital should exceed the amount of short-term debts, i.e. you can not plan a "weakly liquid" balance sheet.
The principle of excess funds - in the planning process, to have a certain reserve of funds to ensure reliable payment discipline in the event that any of the payers delays their payment compared to the plan.
The principle of return on investment. Borrowed capital is beneficial to attract if it increases the return on equity. In this case, the positive effect of the effect of financial leverage is ensured.
The principle of balancing risks - it is advisable to finance especially risky long-term investments at the expense of own funds.
The principle of adaptation to market needs - it is important for an enterprise to take into account market conditions and its dependence on the provision of loans.
The principle of marginal profitability - it is advisable to choose those investments that provide the maximum (marginal) profitability.
Stages of financial planning
Analysis of the financial situation;
Development of the overall financial strategy of the company;
Drawing up current financial plans;
Correction, linking and concretization of the financial plan;
Implementation of operational financial planning;
Implementation of the financial plan;
Analysis and control of the implementation of the plan.
Financial planning (depending on the content, purpose and objectives) can be classified into:
1) Advanced financial planning in modern conditions covers a period of time from one year to three years. It determines the most important indicators, proportions and rates of expanded reproduction, is the main form of realization of the goals of the organization. In the process of long-term planning, they receive their economic justification and refinement of the installations made in strategic planning.
Long-term planning includes the development of the financial strategy of the enterprise and the forecasting of financial activities. The development of a financial strategy is a special area of financial planning, since, being an integral part of the overall strategy for economic development, it must be consistent with the goals and directions formulated by the overall strategy. In turn, the financial strategy has an impact on the overall strategy of the enterprise.
The result of long-term planning is the development of three main financial forecast documents:
a) a planned profit and loss statement - in order to draw up forecast financial documents, it is important to correctly determine the volume of future sales (volume of products sold), the need for investment resources, and ways to finance these investments. Forecasting sales volumes begins with an analysis of current trends over a number of years, the reasons for certain changes. The next step in forecasting is to assess the prospects for further development of the enterprise's business activity from the standpoint of the formed portfolio of orders, the structure of products and its changes, the sales market, competitiveness and financial capabilities of the enterprise. Based on the sales forecast data, the required amount of material and labor resources is calculated, and other component production costs are also determined.
b) a planned cash flow statement - the cash flow forecast takes into account cash inflow (receipts and payments), cash outflows (expenses and expenses), net cash flow (surplus or deficit). In fact, it reflects the movement of cash flows from current, investment and financial activities
c) balance sheet forecast - the balance sheet forecast at the end of the planning period reflects all changes in assets and liabilities as a result of planned activities and shows the state of the organization's property and sources of financing. The purpose of developing a balance sheet forecast is to determine the required increase in certain types of assets, ensuring their internal balance, as well as the formation of an optimal capital structure.
2) Current financial planning (budgeting) - component long-term plan and is a specification of its indicators. The current financial plan is drawn up for a year.
Budgeting- is, on the one hand, the process of drawing up financial plans, and on the other hand, the technology of financial planning, accounting and control of income and expenses received from business at all levels of management, which allows you to analyze the predicted and received financial indicators. The main object of budgeting is business. Not an enterprise, but business as a type or area of economic activity.
Budgeting performs the following main functions:
Planning. Assessment of the financial condition of the enterprise is based on the data of financial statements. However, if any problems are identified, it is too late to change something for the better. In other words, financial management tools are applicable when there is information about the expected future, and not about the past financial condition of the enterprise.
Accounting - budgeting - the basis for management accounting, i.e. development of a coordinate system for business.
Control over the increase in financial stability and improvement of the financial condition of the company as a whole and its individual structural divisions.
In addition, budgeting helps to choose the most promising areas for investment.
a) Operating budgets. In the process of their preparation, the forecasted volumes of sales and production are transformed into quantitative estimates of income and expenses for each of the operating divisions of the organization. Operating budgets consist of:
sales budget;
Finished goods inventory budget;
production budget;
Budget of direct material costs;
Budget for direct labor costs;
General production budget
Business expenses budget;
Management expenses budget.
b) Financial (core) budgets:
Cash flow budget;
Budget of income and expenses;
Estimated balance.
c) Support budgets:
Initial capital cost plan;
Credit or investment budget.
3) Operational planning- development and communication to budget executors of payment calendars and other forms of operational planning targets on all major issues of financial activity (month, quarter, up to a year).
With the help of operational financial plans, the enterprise
Determines the amount of financial resources to ensure the current production and financial activities
Establishes the sequence and timing of certain financial transactions, taking into account the most effective maneuvering of own and borrowed funds
Carries out operational control over the implementation of plans and obligations in terms of production volume and sales of products, profits, payments to the budget, deductions to contentment authorities, settlements with a bank institution.
Operational financial planning includes the preparation of:
payment calendar;
Cash plan;
Calculation of the need for a short-term loan.
Payment schedule is the basis for the organization of operational financial work at the enterprise. This document reflects in detail the operational cash flow through settlement, current, currency, loan and other accounts of the enterprise. The receipt and expenditure of funds is planned in a specific sequence in terms of time, which allows timely settlements, transfer of payments to the budget and extra-budgetary funds.
cash plan- this is a plan for the turnover of cash of the enterprise, which is necessary to control their receipt and expenditure. It is developed to plan the turnover of cash for the quarter and is submitted to the bank institution with which the company has an agreement on settlement and cash services.
Calculations of the need for a short-term loan are compiled by the enterprise if it is in need of a short-term loan, and submitted to the bank in accordance with its requirement, after which a loan agreement is concluded. However, this must be preceded by a reasonable calculation of the amount of the loan, as well as the amount that, taking into account interest, must be returned to the bank. The effectiveness of the credited event or the expected revenue from the sale of products should ensure the timely repayment of the loan and exclude penalties.
All subsystems of financial planning in the enterprise are interconnected and carried out in a certain sequence. The initial stage of planning is long-term financial planning and forecasting of the main directions of the financial activity of the organization.
Financial plan - is the final section of business plans. It is developed as forecast financial documents summarizing the materials of all previous sections of the business plan in value terms. It is devoted to planning the financial support of the organization's activities in order to make the most efficient use of available financial resources. Includes:
Sales volume forecast
Income and expense plan
Directions for using net profit
Tax plan
Cash flow forecast
Forecast of the organization's balance sheet
