The Financial Plan

Financial Feasibility Analysis

 Financial Feasibility
 For feasibility analysis, a quick financial assessment is
usually sufficient.
 The most important issues to consider at this stage are:
 Capital requirements
 Revenue requirement till BEP
 Financial rate of return
 Overall attractiveness of the investment

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Financial Feasibility Analysis

 Capital Requirements & Revenue requirement till

BEP
 In the feasibility analysis stage, it is important that an
entrepreneur have a sense of what the business’s initial
capital requirements will be.
 The figure that is determined provides important
information about the rate of return that can be anticipated
from the business and about the type of financing or
funding that will be needed.

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Financial Feasibility Analysis

 Financial Rate of Return

 Although the estimate may be rough, an entrepreneur
should have a sense of the rate of return that the proposed
business will produce.
 This figure can be determined in part by looking at the rate
of return of similar businesses, and then adjusting upward
or downward depending on the unique characteristics of the
proposed business.

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Financial Feasibility Analysis

 Overall Attractiveness of the Investment

 A number of other financial factors are associated with
promising business startups.
 In the feasibility analysis stage, the extent to which a
business opportunity is positive relative to each factor is
based on an estimate rather than actual performance.

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Financial objectives are both the starting &
finishing point of a good business plan.

The Financial plan seeks to reflect the

financial implications of your marketing,
people and operational plans in the form of
profit-loss accounts, cash flows, and balance
sheets.
Planning Assumptions
 Example - SARAVANA BHAVAN
 Saravana bhavan will set up and operate a small chain of
south-indian restaurants in UK. These will provide traditional
south-indian food in a relaxed atmosphere offering value-for-
money food in the middle priced NRI market.
The chain of Saravana Bhavan is already a proven concept in
parts of Indian subcontinent, serving south-indian food on a
quick throughput basis but without the fast-food image. Labour
costs are low and with a limited menu, waste is avoided and in
turn makes value for money possible.
One Saravana Bhavan has been in operation for six months in
London, so the following assumptions have been drawn partly
from experience and partly from market research.
 Profit & Loss Assumptions
 A) Sales
 Number of outlets in operation will be :
 Year 1 2
 Year 2 4
 Year 3 7
 Year 5 onwards 10
 Operating six days a week, meals sales will be :
 Year 1 40 per day
 Year 2 50 per day
 Year 3 onwards 60 per day
 Sales value per meal will be :
 Food £ 6.50
 Drink £ 2.50
 B) Cost of sales per meal
 Food £ 1.75
 Drink £ 1.00
 Labour £ 2.70
 Total £ 5.45
This equals 61 % of sales.
 Profit & Loss Assumptions
 C) Wages: each outlet will employ seven staff at a cost of £ 42,600 per
annum (labour costs = 30 % of sales, which compares favorably with a
general restaurant’s 40 percent).

 D) Directors: paid £ 15,000 per year, rising to £ 20,000 from year 3.

 E) Administrative staff: needed mainly from year 2. Costs will rise from
£ 5,000 to £ 40,000 over seven years.

 F) Rent and services : £ 30,000 per outlet per annum

 G) Alterations, equipment and decoration : £ 40,000 per outlet.

 H) Advertising : £ 2.000 per outlet per annum

 I) Inflation: all income and expenditure is stated at current prices.

 Cash-Flow assumptions
 No debtors – all meals paid in cash
 Salaries and wages paid monthly
 Purchases paid monthly
 Rent paid half-yearly
 Rates paid monthly
 Loan interest paid quarterly from month 1
 Overdraft interest paid quarterly from month 3
 Sales spread evenly over each month of year
Balance sheet assumptions
 Closing stock : building up to six weeks’ sales
 Depreciation of fixed assets: improvements and office, 20
percent per annum; fixtures and fittings, 25 percent per
annum
 Creditors: Equivalent to one month’s cost of sales
 Once the set of assumptions is made one
has to take care of the following :
 Key assumptions
 Basis of each Assumption
 Confidence in each assumption
 What will happen if the assumption proves
incorrect
 When contingency action can be taken, when
it should actually be taken
Income Statement or Profit & Loss
Account
 A financial statement for companies that indicates
how Revenue (money received from the sale of
products and services before expenses are taken
out, also known as the "top line") is transformed into
net income (the result after all revenues and
expenses have been accounted for, also known as
the "bottom line").
The purpose of the income statement is to show
managers and investors whether the company made
or lost money during the period being reported.
Income Statement or Profit & Loss
Account
Cash-Flow Statement
 A financial statement that shows a company's
incoming and outgoing money (sources and
uses of cash) during a time period (often
monthly or quarterly).
The statement shows how changes in
balance sheet and income accounts affected
cash and cash equivalents, and breaks the
analysis down according to operating,
investing, and financing activities.
Balance Sheet

 A summary of a persons or organization's

assets, liabilities and Ownership equity on a
specific date, such as the end of its financial
year.
A balance sheet is often described as a
snapshot of a company's financial condition.
Financing a New Venture

 Financial assistance to entrepreneurs is

available from institutions such as
Nationalized banks, Small Industries
Development Bank of India, Regional Rural
Banks,etc…. depending upon the project
requirement and promoters background.
 Financial assistance has two components :
 Loan for Fixed Capital
 Loan for Working Capital
Industrial Finance in India
 National Level Industrial Development Banks
 Industrial Development Bank of India (IDBI)
 Industrial Finance Corporation of India (IFCI)
 Small Industries Development Bank of India (SIDBI)
 Industrial Reconstruction Bank of India (IRBI)
 Shipping Credit and Investment Company of India (SCICI)
 Specialized Financial Institutions
 Technology Development & Information Company of India
Limited (TDICI)
 Risk Capital & Technology Finance Corporation Limited
(RCTC)
 Tourism Finance Corporation of India (TFCI)
Industrial Finance in India
 Investment Institutions
 Unit Trust of India (UTI)
 General Insurance Corporation of India (GIC)
 Life Insurance Corporation of India (LIC)
 Other Banks Offering Financial Assistance
 Small Industries Development Bank of India (SIDBI)
 Industrial Development Bank of India
 Industrial Finance Corporation of India
 ICICI Bank
 National Bank for Agriculture and Rural Development
(NABARD)
 State Bank of India
Venture Capital

 Venture Capital - Venture capital is a type

of private equity capital typically provided by
professional, outside investors to new, growth
businesses.
 Venture capital investments are generally
made as cash in exchange for shares in the
invested company.
 Venture Capitalists Generally :
 Finance new and rapidly growing companies
 Purchase equity securities
 Assist in the development of new products or services
 Add value to the company through active participation
 Take higher risks with the expectation of higher rewards
 Have a long-term orientation
 Some Venture Capital Organizations
 ICICI Venture Funds Management Company Limited
 SIDBI Venture Capital Limited (SVCL)
 IFCI Venture Capital Funds Ltd. (IVCF)
 Gujarat Venture Finance Limited (GVFL)
 IL & FS Group Businesses