6 Financials Financial projections typically include a set of statements for each different set of assumptions (ie. different scenarios that may eventuate). In this assignment you may consider only one, or multiple, potential future scenarios (you decide). Whatever you decide, you are specifically required to provide the following in the financial section of your group report. Introduction to section (Why are you doing this analysis?) Explain how your projection links to previous sections. 6.1 Projected financial statements required Major assumptions. Projected profit and loss statement for the next 5 years. Projected Balance sheet for the next 5 years. Projected cash flow for the next 5 years. Break even analysis. 6.2 Summary Provide a summary of section with findings. ▪ Start-up Capital The start-up capital budget is $500,000 from cash reserves. Caramela, 2022 estimates that an entrepreneur needs six months’ worth of fixed costs on hand at start-up. Table 4A (attached) It will cost Peta-Marron $180,575 plus utility payments, cost of incorporation in Australia of $600, cost of raw materials and lease or hire purchase payments. Small businesses can deduct the cost of purchased assets up to $150,000 through Instant Asset Write-off. Lease payments for business-generating equipment are tax deductible. Financials Financial projections for five years ● Profit and Loss Statement ● Balance Sheet ● Cash Flow Statement Break even analysis is also required on the product. All costs must be justified, and linked to previous sections (e.g. Marketing) Footnotes are excellent for adding references for expenses. Income Statement (P&L) – Projections for 5 years Profit & Loss Statements show: • Total assessable revenues (money in) (for each period) • Total deductible expenses (money out) (for each period) P&L does NOT include: • Start up costs (this will form part of your asset cost, i.e. balance sheet) • Loan and/or capital inflows (balance sheet!) Over time a P&L shows: • The change in profit made (or loss taken) Will not include: • Larger asset purchases or initial investment fees as an expense • Owner’s drawings or capital contributions • Cash inflows like loans or outflows of principle repayments (interest components only!) Will include: • Expenses to run the business • Cost of goods sold • Book entries (like depreciation) A Balance Sheet balances: • Assets = Liabilities + Owner’s Equity A Balance Sheet shows: • A snapshot in time (at end of each year) • Current and non-current assets • Current and non-current liabilities Over time a Balance Sheet shows: • The change in assets, liabilities and OE Show all cash flows (both income and expenses) for the period • Year 1 – start up costs, loan and/or capital inflows. • Note whether figures include GST, or that GST has not been considered. Remember: • Depreciation is a ‘book entry’, not a physical cash flow. • Drawings are a cash outflow, but not a deductible expense You can build your cash flow statement from the information within your P&L and BS! Operating activities This is the money in and money out from normal / day to day operations of a business. You would find the information relating to this from your P&L. ● i.e. receipts from customers = cash coming in from sales (revenue – with adjustments for accounts receivable) ● payment to suppliers = cash going out to pay for costs related to production (COGS – with adjustments for accounts payable) ● other costs = expenses in your P&L Do not include depreciation! It is NOT a cash exchange, it is a book entry. Break even point BEP (units) = the point (in units) where fixed and variable costs are met by sales revenue (where profit = 0). 1. Contribution margin per unit = Sales – variable costs 2. BEP = Fixed costs / Contribution margin per unit
