Financial Plan

Introduction to a Financial Plan

You have studied the marketing, production and administrative plans that should be included in a business plan from the previous chapters. This chapter explains the final and the most important part of a business plan, i.e. the financial plan. The forecasted financial requirements and the profitability of the expected business is included in the financial plan.

Further, the money expected to invest in the business, cash inflows and outflows and the daily cash requirements of the business are estimated by a financial plan. Similarly this shows the expected profit calculated considering the forecasted income and expenditure of the business for a specific period.

Financial plan is useful for an entrepreneur due to following reasons.

# To decide the amount of funds required for the business.
# To minimize financial problems.
# To identify the business result (profit) of the business at the end of a specific period.
# To assess the adequacy of the above said business result

Information included in a financial plan are given below.

# Activities and expenses prior to starting the business.
# An estimation of the total investment.
# Statement of expected cash inflows and out flows.
# Calculation of expected business results.

Let’s briefly discuss each of these parts.

Activities and expenses to prior to business startup

There are activities to be completed and expenses to be incurred before starting any activity. Similarly, before starting a business, certain activities should be done and expenses should be borne by the entrepreneur. Some such activities and expenses are given below.

1. Expenses on market survey

One of the main things done before starting a new business is studying the market relating to the business. We call this a market survey. Expenses on market survey includes expenses incurred to gather the required data, to analyze them and to prepare reports relating to the expected business.

2. Expenditure on improving the business premises

The business premises should be arranged to suit the business before starting the business activities. Expenses that should be incurred with this regard are known as expenditure on improving the place.

3. Expenditure for searching the raw materials and the equipments

Before starting the business, equipments required to the business should be bought and installed. Similarly, if the business is a production, entrepreneur should search for the methods and institutions to get the raw materials and equipments cost-effectively. Cost incurred to find the information relating to the suppliers (institutions) of the raw materials and equipments, their prices, etc. come under this category.

4. Registration Expenses

When starting a business it should be registered at authorized institutions. Further, for some businesses, a special approval or licenses should be obtained.

5. Other Expenses

All other expenses which are not mentioned above and but are to be incurred when starting a business come under this category such as Legal expenses, cost of business plan preparation, expenses for the inauguration ceremony.


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