CHAPTER FIVE

5.0 Financial PLAN

Every business has its own way of gauging whether they are incurring loses or otherwise profits. All
this can be available for any business if the accounting for all the cash is done properly crafted shall
therefore ensure that all the records are in place for correct accounting.

5.1 PRE-OPERATIONAL COSTS

The proposed business will incur the following before its commencement.
ITEM AMOUNT
Raw Material 90,000
Rent 95,000
Advertisement 45,000
Lincense 20,000
Insurance 115,000
Facilities 102,000
Total 425,000

5.2 FINANCIAL REQUIREMENTS

The proposed business will need 500,000 to start. The following will be the source of this capital.
AMOUNT SOURCE OF FINANCE
200,000 Owner’s savings
100,000 Friends and relatives borrowing
20,000 Bank loan
500,000 total
5.3 Working Capital
This is the amount that will help in the day-to-day of running of the proposed business
CURRENT ASSETS YEAR II YEAR II YEAR III
Cash in Hand 96,246 100,000 130,958
Cash in bank 150,000 170,871 167,000
Debtors 12,800 13,000 12,800
Stock 88,000 96,600 106,480
Total Assets 347,046 380,471 417,238
Current liabilities
Creditors 40,000 42,000 35,000
Overdrafts 100,000 130,000 115,000
Working Capital 207,046 250,046 302,238
5.4 PRO-FORM INCOME STATEMENT
Craftseat proforma income statement for the year 2019,2020and 2021

PROFORMA INCOME
ITEMS AMOUNT AMOUNT AMOUNT (2021)
(2019) 2020)
Sales 2000000 2,000,000 2,500,000
Less cost of 400000 600,000
salaries
Gross profit 1600000 1,500,000 1,500,000
Salaries 89000 90,000 100,000
Insurance 115000 120,000 130,000
Power 40000 50,000 40,000
Water 10000 20,000 10,000
Communication 5000 4,500 5,000
Stationery 5000 4,500 4.500
Security 20000 15,000 10,000
Advertisement 4500 5,000 4,500
Loan interest 15000 15,000 10,000
Total expenses 303500 324,000 314,000
Net profit before 1,296,500 167,000 2,468,600
Tax 388950 50,280 740,580
Tax 30%
Net profit after 907,500 117,320 1,728,020
 5.5 PROJECTED CASHFLOW STATEMENTS
5.5.1 PROJECTED CASHFLOW STATEMENT FOR YEAR ONE
Cash Flow JAN FEB MARCH APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC
Bal B/F 1936500 3869000 6226500 6171500 6371500 7916500 7746500 7396500 6971500 7393000 6978000
Sales 2000000 2000500 2500000 150000 150000 2000000 150000 100000 90000 971500 100000 200000
Debtor 25000 25000 25000 25000 25000 20000 10000 5000 10000 25000 25000
Total Cash 2000000 3962000 6394000 6401500 6346500 8196500 8080500 7856500 7491500 7953000 7518000 7203000
Inflow
Cash Outflow
Purchases 40000 50000 90000 115000 115000 120000 130000 150000 160000 160000 150000 150000
Creditors 20000 30000 50000 70000 70000 70000 90000 100000 110000 120000 130000 120000
Electricity 1000 5000 10000 20000 20000 50000 70000 90000 100000 110000 100000 90000
Water 1500 3000 10000 15000 15000 25000 30000 70000 90000 100000 90000 90000
Adverts 1000 5000 7500 9000 9000 15000 20000 50000 60000 70000 70000 65000
Total Cash 63500 93000 167500 230000 230000 280000 340000 460000 520000 560000 540000 515000
Outflow
Net Cash 1936500 3869000 6226500 6171500 6371500 7916500 7746500 7396500 6971500 7393000 6978000 6688000
 5.5.2 PROJECT CASH FLOW STATEMENT FOR YEAR TWO

CASH FLOW JAN FEB MARCH APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC TOTAL
Bal/f 6688000 6198000 5933000 5668000 5403000 5143500 4894000 4399000 4399000 4218800 4033800 3798300 61011400
Sales 200000 200000 200000 200000 200500 200500 200500 200500 250000 250000 200000 200000 2402500
Debtors 25000 25000 25000 25000 30000 30000 200000 200000 200000 200000 25000 30000 295000
Total cash
inflow 6913000 6423000 6158000 5893000 5633500 5374000 5114500 4854500 4669000 4488800 4258800 4028300 63808400
cash outflow
purchase 150000 150000 150000 150000 160000 160000 160500 160500 160000 160000 160500 160500 1882000
creditors 120000 120000 120000 120000 130000 130000 140000 120000 130000 120000 130000 140000 1520000
electricity 90000 90000 90000 90000 90000 80000 800000 80000 70000 70000 70000 80000 980000
Water 60000 60000 60000 60000 50000 50000 50000 45000 45200 45000 50000 60000 635200
Adverts 70000 70000 70000 70000 60000 60000 500000 50000 45000 60000 50000 60000 715000
Total Cash
outflow 490000 490000 490000 490000 490000 480000 480500 455500 450200 455000 460500 500500 57232300
Net cash 6198000 5933000 5668000 5403000 5143500 4894000 4634000 4399000 4218800 4033800 3798300 3527800 58076100
 5.5.3 CASHFLOW STATEMENT FOR THE YEAR THREE

JAN FEB MAR APRIL MAY JUNE JULY AUG SEP OCT NOV DEC TOTAL
BAL B/F 58076100 5765610 57380100 570951000 56849100 57019910 56852100 56570100 56270100 56085100 55869100 55613600 601415700
0 0
Sales 200000 150000 120000 120000 120000 130000 130000 120000 180000 170000 170000 170000 1610000
Debtors 5000 4000 4000 4000 5000 3000 3000 5000 5000 4000 4500 4500 52000
Total 58101100 5781010 57535100 57219100 57232100 56985100 56695100 56455100 56259100 56043600 55788100 626123600
cash 0
inflow
Purchase 200000 200000 150000 150000 150000 150000 200000 200000 150000 150000 120000 120000 1990000
s
Creditors 70000 70000 80000 80000 80000 70000 65000 65000 70000 80000 20000 20500 770500
Electricit 50000 50000 40000 40000 40000 60000 60000 60000 50000 50000 160000 160000 830000
y
Water 40000 50000 40000 40000 40000 50000 40000 50000 50000 40000 60000 60000 570000
Adverts 60000 60000 60000 60000 60000 50000 50000 50000 50000 40000 70000 70000 710000
Total 420000 430000 440000 370000 370000 380000 415000 425000 370000 390000 430000 430500 4870500
cash
outflow
Net cash 57656100 5738010 57095100 56849100 57099100 56852100 56570100 56270100 56085100 55869100 55613600 55357600 6786697200
0
5.6 BALANCE SHEET
Craftseat statement of financial position as at
Item As At The End Of Year Two As At The End Of Year Three
Fixed assets
Machinery and equipment 147420 147,420
Loss depreciation 14,742 11,941
Furniture and fitting 11,500 11.500
Total fixed assets 173,662 170,861

Current assets
cash 30,000 60,000
Cash at hand 200,000 250,000
Stock 150,000 200,000
Debtors 80,000 195,000
Total current assets 460,000 705,000
Total asset 633,662 875841

Liabilities
Current liabilities
Creditors 910,000 700,000
Capital 2,000,000 150,000
Total current liabilities 2,910,000 550,000
Loan 100,000 90,000
Total liabilities 3,010,000 640,000

ASSUMPTIONS
Machine and equipment will epreciate at 5% cash will increase by 10%.

5.7 PERFORMANCE RATIOS

RATIO YEAR 2 YEAR 3

Working capital C.A/C.L= 1.6:1 1.3:1
460000/291000
Gross profit on sales G.P/SALES*100 80% 75%
160000/2000000*100
Quick ratio C.A-S/C.I=460000-150000/291000 1.1 1
Net profit before tax Net profit/sales *100 648.25% 8.4%
1296500/2000000*100
5.8 BREAK EVEN ANALYSIS

Gross Profit = Sales – total direct cost

Gross profit for year one:

2,000,000 – 303,500 = 907,550

Gross profit for year two

2,000,000 - 32,400 = 167,600

Gross profit for year three

2,500,000 – 31,400 = 2,468,600

Gross profit margin = (Gross Profit x 100)/Sales

Gross profit margin for year one

(907,550 x 100)/2,000,000 = 45%

Gross profit margin for year two

(167600 x 100)/2,000,000 = 8%

Gross profit margin for year three

(2,468,600 x 100)/2,500,000 = 98%

Breakeven level = (Expense x 100)/Gross profit

Breakeven level for year one

(303500 x 100)/45 = 67,444

Breakeven level for year two

(32400 x 100)/8 = 405,000

Breakeven level for year three

(31400 x 100)/98 = 32,041

5.9 CRITICAL RISKS AND PROBLEMS
The risks and problems that the business will face include

 Unreliable supply of water

 Insecurity
 Transport problems

To overcome the above risks and problems the proposed business will hire trained securities to
guard the premises of the enterprise both at night and during the day.