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Business Plan Part 3 Business & Marketing Essay Paper (Essay Sample)


My attached Business Plan contains what I have submitted to the instructor so far now I need to complete the following items (page 8-11) Operating Plan, Financial Plan and Financial Statements (Balance Sheet & Income Statement) information.
Below is information from the instructor.
IMPORTANT REMINDER: Not all areas in every section of the Business Plan template will apply to your business. That's ok! Only take information from the template that is applicable and helpful to you in developing your Business Plan.
Note: This is a BIG project. It is broken down into five parts. The first four parts are worth 10 points each. These are drafts to what your final version will be. That said, you may submit them using the templates question/answer process.
The Final part of the Business Plan (part five) is worth 60 points for a total of 100 points. This is where you will remove all of the questions if you used the question/answer method for parts 1-4. The final should represent what you will present to future stakeholders and investors of your company.




The financial forecasting model, FINFORECAST, provided in an accompanying Excel document, and described in this word document, is based on the presentation of financial forecasting provided in Small Business Management:  Launching and Growing Entrepreneurial Ventures, by Longenecker, Moore, and Petty (South-Western).



As a means to prepare a simplified business plan, we provide an Excel spreadsheet, FINFORECAST, that allows the user to make five-year projections of income statements, balance sheets, and statements of cash flows.  The model is totally integrative in that any change in assumptions will be recognized throughout all the financials.   For instance, a change in the amount of debt shown in the balance sheet affects the firm's interest expense in the income statement, which in turn affects net income, which alters the retained earnings in the balance sheet.   All these changes are recognized simultaneously.

To use the financial forecasting model, open the Excel file, FINFORECAST.  When you open the file, there will be a security warning at the top of the spreadsheet.� Click on options next to the right of the warning to enable the macros in the program.

You will then notice an area of the spreadsheet that is shaded yellow with the words and numbers in bold italics.  This area is for entering the assumptions to be used as the basis of your forecast.  The assumptions already appearing in the cells are based on an illustration described below.  However, as soon as the assumptions are changed by entering new numbers in the place of the existing numbers and the existing macros are used, the revised answer will appear.


To use FINFORECAST, we first make assumptions about the firm's future financial performance in terms of:

1.Sales projections-both beginning sales and sales growth rates for each year.

2.The minimum acceptable amount of cash to be maintained in the business.

3.Cost and expense relationships to sales.

4.Relationships of assets and spontaneous liabilities[if !supportFootnotes][1][endif] to sales.

5.Estimates regarding the purchase of equipment and building.

6.The amount of equity (common stock) that the owner will invest in the business.

7.The terms of debt financing-type of loan, duration of the loan, the interest rates, and any loan covenants imposed by the lender.

Once the basic assumptions have been designated, the forecast model uses macros to determine:

1.How much line of credit[if !supportFootnotes][2][endif] the firm can borrow from the bank without violating the bank's requirement that the firm maintain a predetermined minimum current ratio-if such a 'loan covenant' is imposed on the company.

2.The amount of additional long-term debt (in addition to a mortgage to finance the purchase of a building) that will be required to complete the firm's financing needs. The model assumes that the firm will use as much line of credit as possible before resorting to any long-term debt.

If the firm reaches the point where it has more financing than required to meet its financial requirements (debt plus equity is greater than total assets), then we assume that the excess is invested in cash.  In other words, if the firm's debt and equity before borrowing any line of credit or additional long-term debt exceeds total assets, then the difference is used to increase cash above the minimum acceptable cash balance.   Alternatively, an entrepreneur may not want to retain all of the increasing cash in the firm, and could choose to expand the firm's plant and equipment or to pay dividends or to pay down the mortgage more quickly than planned.  Any such choices can be recognized in the financial model by simply changing the appropriate balances in the balance sheet.



To illustrate the use of FINFORECAST, consider the following example.

Camaron Chai is planning to start a new business to provide sales training material for automobile dealers.   After studying a similar company in a different state, she believes the business could generate sales of approximately $200,000 in the first year, with expected sales growth for the next five years at 35 percent per year.  Based on her investigation of the opportunity, she has also made the following projections:

1.  Expected expense relationships


Variable cost of goods to sales



Variable operating expenses to sales



Mortgage interest rate



Line of credit and other debt interest rate



Tax rate



The company's fixed costs would be as follows:
















Fixed cost of sales






Fixed operating expenses







2.  The requirements for accounts receivable, and inventories have been estimated as a percentage of sales:



Percentage of Annual Sales


Accounts Receivable





3.  Camaron has searched for an office/warehouse facility and has found a building suitable for the needs of the business that would cost about $90,000. The facility will be depreciated over 15 years to a zero salvage value.

4.  Equipment purchases will be around $40,000 for the first year and $10,000 per year in the ensuing years. She will depreciate the equipment on a straight-line basis over five years.

5.  Camaron has negotiated with a supplier to extend credit on inventory purchases; as a result, it is expected that accounts payable will average about ten percent of sales.

6.  Accruals should run approximately five percent of annual sales.

7.  Camaron plans to invest $100,000 of her personal savings in the venture in return for 20,000 shares of common stock.

8.  The bank has agreed to provide a short-term line of credit to Camaron up to $30,000 at an interest rate of 12 percent. For planning purposes, interest for this source of credit will be computed based on the amount of debt outstanding at year end.

9.  The bank has also agreed to help finance the purchase of the building to be used in manufacturing and warehousing the firm's product. The bank will loan the company $45,000, with the building serving as collateral for the loan. The loan will be a mortgage to be repaid in equal annual payments over 20 years. The interest rate on the mortgage is to be 10 percent.

10.  As conditions for the bank agreeing to loan the money to Camaron, the banker would impose two loan restrictions (loan covenants): (1) the firm's current ratio (current assets � current liabilities), should not fall below 1.75, and (2) no more than 65 percent of the firm's financing should come from debt. Failure to comply with either of these terms would result in the bank loans coming due immediately.

11.  If additional financing is needed, Camaron will seek out lenders who would provide long-term debt at an expected interest rate of 12 percent.  The principal could be increased or decreased as needed. For planning purposes, the interest rate will be based on the balance outstanding at the year end.

12.  Camaron wants to maintain a minimum cash balance of $10,000, but would like to have more cash when the firm can afford to do so without borrowing.


Given the information above, we can now use FINFORECAST to prepare pro forma financial statements for Chai, Inc. The steps are as follows:

1.Open the Excel spreadsheet, FINFORECAST.  When the file opens, you need to select the optios on the security warning to enable the macros.  Choose 'enable macros'.

2.In the top part of the spreadsheet, you will enter the values for the different assumptions.  (The numbers for Chai, Inc. are already entered in the spreadsheet, but when ready, you can replace these numbers with your own assumptions.)

3.Click on 'Set Min Cash' box next to Cell E7.  For Chai, Inc., this number should be $10,000.

4.Click on the box 'Clear LOC' (line of credit) box in column I, between rows 58 and 59 and 'Clear Other LTD' (other long-term debt) shown in column I between rows 61 and 62, which will set these values to zero for all years.  At this point, the balance sheet is out of balance; that is, total assets do not equal total debt and equity.

5.Finally, click on the box 'Balance All Prds', which computes the line of credit and other long-term debt needed to finance the firm's assets.  At this point, the income statement, the balance sheet, and the statements of cash flows are all complete.  (Note row 70 shows that 'additional financing needs' are equal to zero in all periods, which means that total assets exactly total debt and equity.  Also, the current ratio is equal to or greater than 1.75 and the debt ratio (total debt � total assets) is not above 65 percent in any period.

If you encounter a �run error�, it means that in one or more years, you have exceeded the maximum debt ratio (set at 65 percent for Chai, Inc.)� To solve this problem, you will need to raise the debt limit in the assumptions, or add more equity from Camaron.)

Below the statement of cash flows, you will notice a section that shows the repayment schedule for the mortgage.   The equal payment is calculated, along with the annual interest and the note balance that is outstanding at the conclusion of each year.  If we continued the schedule for 20 years, we would see that the note would be completely paid off in the 20th year.
To understand the solution for the Chai, Inc. illustration, some comments are helpful:

1.For year 1, the firm will pay no taxes due to its loss.  The line of credit is limited to $15,718, as opposed to the full $30,000 line of credit.  Any amount above the $15,718 would cause the current ratio to fall below 1.75 and the firm would be in violation of its loan agreement with the bank.  The remaining financing would have to come from long-term debt, which is $24,380.  When all this is done, we see that the 1.75 minimum current ratio is satisfied and the debt ratio is below the 60 percent constraint imposed by the bank.

2.In the second year, the firm is profitable; however, in computing taxes, the loss in the prior year can be applied against the income for the second year.  Thus, the firm will pay taxes on the income for the year less the loss carry forward from year 1; that is, the taxable income is $1,188 ($19,500 - $18,312)  Accordingly, the taxes for the year are $357 ($1,188 x 0.30 tax rate).  Regarding the line of credit, the amount available is limited to $19,218, due to the loan covenant that the current ratio cannot be less than 1.75.  The remaining financing needs to fund the asset requirements would have to be provided from long-term debt, which amounts to $10,600.  The debt ratio has declined from 58 percent in year 1 to 53 percent in year 2, below the 60 percent maximum debt ratio covenant.

3.In year 3, the firm pays taxes on the earnings before taxes, since the loss carry forward has been fully used in year 2.  If some of the loss in year 1 had not been fully used in year 2, the remaining loss would have been applied to year 3 and in future years if any unused loss still remains.  Further, the firm no longer has any need for long-term debt.  The firm's debt requirements can be satisfied completely with the line of credit in the amount of $8,701.  At this time, the amount of financing is not dictated by the 1.75 current ratio constraint, or by the maximum 60 percent debt ratio that the bank imposes.

4.In years 4 and 5, the firm no longer has a need for the line of credit or the long-term debt.  The firm's profitability is now more than sufficient to provide the needed capital.  Now, the minimum cash balance of $10,000 no longer is a necessity, but depends on what the entrepreneur wants to do with the extra cash.   In this solution, we are allowing the owner the flexibility to have some additional liquidity in the form of extra cash if desired.  (The amount of cash is simply determined by finding the amount of cash that results in total assets equaling total debt and equity.)


 [if !supportFootnotes][1][endif] Spontaneous liabilities include any short-term debt that spontaneously increases as sales increase, such as accounts payables and accruals. These sources of financing typically do not require any payment of interest, as opposed to a bank loan, which requires the borrower to negotiate the loan and pay interest on the balance outstanding


[if !supportFootnotes][2][endif] Line of credit is a type of short-term loan from a bank that can be used to finance short-term financing needs.� The bank sets a maximum amount that can be borrowed, much like a maximum credit balance on a credit card.


Business Plan
Student’s Name
Institutional Affiliation
Business Plan: Thompson Flats Sweets
Company overview
Thompson Flats Sweets will be a home-based bakery that caters to the local farmer’s markets community. The bakery will serve the interest of the community from the surrounding residential and businesses. The company will be baking a variety of cakes, cupcakes as well as cookies that are tailored to match customer tastes. The bakery will specialize in the creation as well as designing cakes and cookies for different life events and corporate functions. The products will be prepared with fresh locally grown ingredients.
My company will be registered as a general partnership having two partners my husband Todd and I will be jointly liable for the profits and general debts of the company with their every property. I have had extensive knowledge of financial management experience. My partner, on the other hand, brings expertise and experience in marketing and sales.
The plan of the company involves a possible expansion of business operations through the increase in the production of takeaway restaurant bakery products.
Management Plan
Thompson Flats Sweets will be owned and managed by my husband and me who have previous experience in the Financial, Marketing and Sales Industry.
I’ll be handling the Finance, Manager & Baker
•Managing the financial aspect
• Chief decorator of the baked goods
•Making all the daily decisions with the menu
• Coordination with the wholesale dealers
•Helps in advertising and marketing the company products
Todd will handle Sales, Marketing & Advertising
•Manages the sales and marketing
• Will provide management skills for the store front
Mission Statement
Thompson Flats Sweets aims to provide delicious homemade baked goods at a competitive price to our community. The recipes will have a modern twist for the purposes of satisfying the taste buds across generations with a dash of excellence a passion and a scoop of creativity.
Vision Statement
Our vision is to provide delicious homemade baked good that keeps customers coming back for more.
The Goal and Objectives
The goal of Thompson Flats Sweets is to have fun and grow. The company also will focus on the selling of higher quality products than competitors at the farms market and take advantage of local festivals that will happen in my county.
•To establish a business with takeaway products and online ordering.
•To develop a strong presence in the community needed to support sales goals.

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