FINANCIAL PLANNING FOR

BUSINESS START-UPS
INTRODUCTION:
■ Preparation of a financial plan can help entrepreneurs to evaluate their business
financial ability to carry out a project.

■ Importance of preparing a financial planning:

 To determine the size of investment, i.e. project implementation cost
 To identify and recommend the related sources of funding
 To ensure sufficient start-up capital
 To acces the viability of a project before invest
 As a guideline for the implementation of the project
OVERVIEW OF FINANCIAL MANAGEMENT:
■ From the figure, you should understand the following:
a) Project implementation cost is the total capital required to finance the project
cost, including cost of purchasing assets, expenses for working capital
(monthly expenses) and other miscellaneous items.

b) Fund sources include owner’s equity, external borrowings and contribution of

owner’s existing assets.

c) The cash flow projection statement represents data on all monthly cash inflows
(i.e. cash capital injection, sales, collection of account receivable, etc.) minus
all monthly cash outflows (i.e. purchases, salary, paying of account payables,
dividend, etc.) to yield the monthly cash balance. Generally, a positive
monthly cash balance is a good indication that the project is viable
OVERVIEW OF FINANCIAL MANAGEMENT
(cont.)
■ From figure, you should understand the following:
d) The profit and loss statement represents the total sales in a financial period
minus the cost of goods sold/used to yield the gross profit. The gross profit
minus the total expenses for the period (i.e. salary, rental, utility, etc.) will
yield the profit for the financial period.

e) The balance sheet represents the amount of money or value at the end of a
financial period for every item listed as an asset (fixed asset and current
asset), items listed as liability (borrowings and account payable), and equity
(capital injected and accumulated profit). The balance sheet must be as
follows:

Asset = Liability + Equity

OVERVIEW OF FINANCIAL MANAGEMENT
(cont.)
■ A basic financial plan includes the following:

Step 1: Project implementation cost and sources of fund

Step 2: Loan amortisation
Step 3: Depreciation of asset
Step 4: Cash flow projection
Step 5: Projected financial statement
Step 6: Projected balance sheet

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STEP 1: PROJECT IMPLEMENTATION
COST & SOURCES OF FUND

1. Purchasing of fixed asset

Project 2. Working
4. Contingency plan implementation capital
cost

3. Other cash
requirement

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1. Purchasing of fixed asset
■ Fixed assets:
– Assets that are used to generate revenue
– Examples: cars, building, machines, etc.

■ Non-current assets
– Refers to the costs incurred for the purchase of fixed assets
– The cost of modifying the fixed assets are also considered as non-current
assets.

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 2. Working capital
Production/ operation
expenses
Cost to produce business
products
Manufacturing operations:
• Raw material costs
• Direct labour
• Factory overhead
Service operations:
• Expenses involved in running
the business operations
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Working capital
Administrative expenses
Associated with the company’s
management. Not involved in
production
• Payroll administration
• Rental
• Utilities
• Office supplies
• Insurance
Marketing/ sales expenses
Associated with selling products
and services
• Salesmen salary
• Allowance for salesmen
• Salesmen bonus
• Promotion
3. Other cash requirements
■ Every project undertaken must fulfil other requirements that normally incurred
either: once during project start-up; or once a year

■ Examples:
– Deposit for facilities such as utilities, business space
– Preliminary expenses : expenses incurred before starting a business such as
license registration, legal fees, training, stamp duty.

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4. Contingency plan
■ Special budgets are made to adress the problmes of rising prices or for expenses
that may occur but not counted in the cost of project implementation.

■ Aim : so companies do not get caught in financial problems due to unexpected

events of things.

■ This provision is estimated around 5-10%

■ Entreprenuers will use their own discretion in determining the amount of this
provision.

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Example of project implementation cost
Monthly Others
Fixed asset Total
Descriptions: expenditure (one-off,
(RM): (RM):
(RM): RM)
Fixed asset
Machinery 55,000 55,000
Factory renovation 8,000 8,000
Working capital
Marketing expenses 2,500 30,000
Operation expenses 31,000 372,000
Administrative expenses 17,300 207,600
Other expenses
Deposit 10,000 10,000
License registration 4,000 4,000
Insurance and road tax 2,400 2,400
Miscellaneous (10%) 1,640 1,640
Grand total 690,640

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STEP 1: SOURCES OF FUND
■ Is the sources of money to be capitalised for the business; normally from the
owner’s money and borrowings.
Sources of fund: Descriptions:
Own money Your own savings or liquid asset sale (i.e. Shares, unit trust
shares or gold)
Own existing asset You can use your existing asset (i.e. Computer, van)
There are a number of external sources of fund that you can
explore. Find the one that offers the best terms. For example:
• Seek partners to invest together
• Seek a creditor who can supply raw material and equipment
External sources
on credit
• Borrow from family members, friends and relatives
• Look for grants and assistance from government agencies
• Obtain loans from a financial institution

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STEP 2: LOAN AMORTISATION
■ A loan amortisation table is a table that schedules the principal, interest and loan
balance over the borrowing period.
■ Example of table of loan amortisation
Table of loan repayment
Total (RM): 155,500
Interest rates: 6%
Loan period: 10 years
Year Principal Interest Payment Principle
  - -   155,500
1 15,550 9,330 24,880 139,950
2 15,550 9,330 24,880 124,400
3 15,550 9,330 24,880 108,850
4 15,550 9,330 24,880 93,300
5 15,550 9,330 24,880 77,750
6 15,550 9,330 24,880 62,200
7 15,550 9,330 24,880 46,650
8 15,550 9,330 24,880 31,100
9 15,550 9,330 24,880 15,550
10 15,550 9,330 24,880 -

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STEP 3: DEPRECIATION OF ASSET
■ The value of an asset depreciates over time. The depreciation amount per year
or per month is calculated based on the life expectancy of the asset. It is
deducted as an expense in the profit and loss statement.

■ Example: cost of asset (equipment) = RM1,500

Life expectancy of assset is 100 weeks (approximately 2 years)

Depreciation per week = RM1,500 / 100 weeks

= RM15 / week

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STEP 3: DEPRECIATION OF ASSET (cont.)
■ Example of table of depreciation
Type of asset: Office equipment

Cost (RM): 18 500

Life expectancy: 8 years

Cumulative
Year Yearly depreciation Book cost
depreciation

  - - 18,500

1 2,312.50 2,312.50 16,187.50

2 2,312.50 4,625 13,875

3 2,312.50 6,937.50 11,562.50

4 2,312.50 9,250 9,250

5 2,312.50 11,562.50 6,937.50

6 2,312.50 13,875 4,625

7 2,312.50 16,187.50 2,312.50

8 2,312.50 18,500 -

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STEP 4: CASH FLOW PROJECTION
■ Cash flow projection is the estimated total cash inflow, cash outflow and
balance of cash at the end of the day, week or month. It is done for an
accounting period (e.g. one month or one year)

■ Compare the inflow and outflow of cash

** Depreciation of fixed assets will be calculated in the profit and loss

statement but not in the cash flow statement

** Interest will only be calculated as monthly expenses and included in the

profit and loss statement

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CASH FLOW STATEMENT FORMAT
Year Year Year Year
1 2 3 N
Cash inflow
Capital
Loan

Collection of sales
(A) Total inflows

Cash outflow
Purchase of raw materials
Purchase of fixed assets
Expenses

Loan repayment
(B) Total outflows
Surplus/Deficit (A – B)

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STEP 5: PROJECTED FINANCIAL STATEMENT

■ Reports the forecasts of annual revenue and expenditure to determine the net
profit earned by the end of financial year.

■ Consist of:
1. Sales – revenue or business insights
2. Expenditure – overall operating costs and services
3. Profit/loss – the difference between sales and expenditure. If positive, the
business is profitable and vice versa

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PROFIT & LOSS STATEMENT FORMAT
Year Year Year Year
1 2 3 N
Sales revenue

Other revenues/income (if any)

(A) Total sales revenue
(B) Minus: Cost of Goods Sold
(C) Gross profit (A – B)
(D) Expenses
Salary
Rental
Utilities
Maintenance
Depreciation
Other expenses
(E) Total expenditure
(F) Profit before tax (C – E)

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STEP 6: PROJECTED BALANCE SHEET
■ The balance sheet shows the balance for cash, asset, liability and equity at the
end of the financial period.

■ This statement shows how the number of business assets financed through
internal resources (capital or equity owners) and external sources (liabilities).

■ A company that is financially healthy will have a high amount of cash and asset,
low liability and positive accumulated profit instead of accumulated losses.

Asset = Equity + Liability

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BALANCE SHEET FORMAT
ASSET LIABILITY

Current assets Current liabilities

Cash/Bank Account payable

Inventory Others
Account Receivable
Previous payment
Total current assets ……. (1)

FIXED ASSET LONG-TERM LIABILITIES

Machineries Loan terms

Building EQUITY
Others
Total fixed assets …….. (2) Shareholders/capital
Accumulated profit
Total assets (1 + 2) Total Liability + Equity

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EXERCISE 1
1. Prepare the Profit and Loss Statement for the year ended December 2016 for
the water filter trading system.

2. Prepare the Cash Flow Statement for the year ended December 2016 for the
water filter trading system.

3. Prepare the Balance Sheet Statement for the year ended December 2016 for the
water filter trading system.

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 January – December 2016
Assumption: RM:
Started operation on 1/12016
Cash injected by owner 30,000
Sales (unit) 4,500
Selling price/unit 400
Purchase price/unit 180
Purchase of fixed asset (September) (life expectancy: 5 years, cash
payment of RM10,000 in September and the balance will be paid in 15,000
January 2017).
70% of sales collection in 2016
Water filter stock:
Number of units purchased 5,000
Monthly expenses
Salary 6,000
Office and warehouse rental 2,000
Utility 500
Transportation 4,000
Maintenance 2,000
Advertisement (for a year) 30,000
Miscellaneous 200
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 Solution (Exercise 1a)
Profit and Loss Statement for the year ended December 2016 for the water filter trading system

RM: Description:
A) TOTAL SALES REVENUE
Water filtration systems that have been sold 1,800,000

Cost of water filter X Total

B) COST OF GOODS SOLD 810,000
of water filter sold

C) GROSS PROFIT 990,000 (A) – (B)

D) EXPENSES
Expenses for a year
Salary 72,000
Office and warehouse rental 24,000
Utility 6,000
Transportation 48,000
Maintenance 24,000
Advertisement (for a year) 30,000
Miscellaneous 2,400
Machine price / life
Depreciation 3,000
expectancy of machine
E) TOTAL EXPENSES 209,400
NET PROFIT BEFORE TAX 780,600 (C) – (E)
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 Solution (Exercise 1b)
Cash Flow Statement for the year ended December 2016 for the water filter trading system

RM: Description:
CASH INFLOW
Capital 30,000
Collection of sales 1,260,000 70% of sales collection in
A) Total 1,290,000 year 2016
CASH OUTFLOW
Purchase of goods 900,000 Total of purchased goods
Purchase of fixed asset 10,000 at cost price
Salary 72,000
Office and warehouse rental 24,000
Utility 6,000
Transportation 48,000
Maintenance 24,000
Advertisement (for a year) 30,000
Miscellaneous 2,400
B) Total 1,116,400
Surplus/(deficit) 173,600 (A) – (B)

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 Solution (Exercise 1c)
Balance Sheet Statement for the year ended December 2016 for the water filter trading system

RM: Keterangan:
ASSET
Current asset 173,600
Account receivable 540,000 Remaining 30% not yet
Fixed asset 12,000 collected
Inventory 90,000 Machine price – yearly
Total depreciation
815,600
EQUITY
Capital 30,000
Profit 780,600
Total 810,600
LIABILITY
Account payable 5,000 Remaining unpaid
machine price
EQUITY + LIABILITY 815,600

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EXERCISE 2
1. Prepare the Profit and Loss Statement for the year ended December 2016 for
Pink Florist Enterprise

2. Prepare the Cash Flow Statement for the year ended December 2016 for Pink
Florist Enterprise

3. Prepare the Balance Sheet Statement for the year ended December 2016 for
Pink Florist Enterprise

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 January – December 2016
Assumption: RM:
Started operation on 1/1/2016
Cash injected by owner 70,000
Bank loan (Interest 6%, 6 years) 20,000
Sales (unit) 13,000
Selling price/unit 25
Purchase price/unit 10
Purchase of van (March) (life expectancy: 8 years, cash payment) 60,000
95% collection of sales in 2016
Flowers and materials
Number of units purchased 13,400
Monthly expenses
Salary 4,000
Shop rental 2,000
Utility 500
Transportation 300
Maintenance 300
Advertisement (for a year) 3,000
Miscellaneous 200
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 Solution (Exercise 2a)
Profit and Loss Statement for the year ended December 2016 for Pink Florist Enterprise

RM: Description:
A) TOTAL SALES REVENUE
Flowers that have been sold 325,000
Flowers sold X cost price
B) COST OF GOODS SOLD 130,000
of flower
C) GROSS PROFIT 195,000 (A) – (B)
D) EXPENSES
Salary 48,000 Expenses for a year
Shop rental 24,000
Utility 6,000
Transportation 3,600
Maintenance 3,600
Advertisement (for a year) 3,000
Miscellaneous 2,400
Depreciation 7,500 Van price / van life
Bank interest 1,200 expectancy
TOTAL EXPENSES (D) 99,300
NET PROFIT BEFORE TAX 95,700 (C) – (D)
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 Solution (Exercise 2b)
Cash Flow Statement for the year ended December 2016 for Pink Florist Enterprise

RM: Description:
CASH INFLOW
Capital 70,000
Sales collection 308,750 95% of sales collection in
Loan 20,000 2016
Total 398,750
CASH OUTFLOW
Purchase of goods 134,000 Total of purchased goods
Purchase of fixed asset 60,000 at cost price
Salary 48,000
Shop rental 24,000
Utility 6,000
Transportation 3,600
Maintenance 3,600
Advertisement (for a year) 3,000
Miscellaneous 2,400
Loan 4,533
Total 289,133
Surplus /(deficit) 109,617
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 Solution (Exercise 2c)
Balance Sheet Statement for the year ended December 2016 for Pink Florist Enterprise

RM: Description:
ASSET
Current asset 109,617
Account receivable 16,250 Remaining 5% not yet
Fixed asset 52,500 collected
Inventory 4,000 Machine price – yearly
Total depreciation
182,367
EQUITY
Capital 70,000
Profit 95,700
Total 165,700
LIABILITY
Account payable 16,667 Unpaid loan balance

EQUITY + LIABILITY 182,367

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 Thank you...

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