Section 5: Financial Strategy

The Business Plan

1) Executive Summary2) Market Analysis3) Resource Analysis4) Operating Strategy5) Financial Strategy6) Contingency Plan

Financial Strategy

1) Establishing Financial objectives2) Calculating Start-up: Costs

and Operating Expenses3) Projecting Revenue and

Expenses4) Securing Financing

Financial Objectives• This section gives you an opportunity to communicate

what financial goals you have for your business– Break Even Point

• How many sales you need to make in order to not lose money per unit

– Profit Margin• The percent of the final selling price that will be profit

– Return on Investment (ROI)• The percent of profit that investors will earn back on their

investment– Overall financial goals

• Earn x amount of salary• Earn x amount of profit/revenue• Earn enough to expand to other locations with x amount of years

Break Even Point• How many sales you need to make in order to

make your money back• This will be different depending on the type of

good or service you are selling• Selling Price X Number of Sales = Variable Cost X

Number of sales + Fixed CostsExample:• You sell ice cream for $4/cone, the materials cost

$2.50 your fixed costs (counters, freezers, etc.) cost you $30,0000

Break Even Point

Revenues = Expenses4x = 2.50x + 30,0004x – 2.50x = 30,0001.50x = 30,000X = 30,000/ 1.50X = 20,000

Therefore, you will need to sell 20,000 ice cream cones to make your money back

Profit Margin

• For each unit you sell – what percentage of $$ will be purely profit

• Tough to do for a service business.....– Therefore not required for business plan

• Profit Margin = selling price – cost price x 100selling price

Profit Margin

• The cost of producing a plastic Maskoka chair is $15 and it is sold for $20

• Profit Margin = selling price – cost price x 100selling price

• PM = 20 – 15 x 100 20

• 25%

Return on Investment

• The amount of profit that investors earn in return for the capital they have invested in a venture

• ROI = amount returned – amount invested x 100amount invested

ExROI = 15 000 – 10 000 x 100

10 000= 50%

Start Up Costs• In the Resource Analysis section– You decided what material and technological

resources you needed in order to operate your business

• In the financial Strategy section– You will allocate costs to those resources

• This can be difficult – finding the cost of all your resources– Level 4 – will find nearly all the costs, Level 3 – the

costs of the major resources, Level 2 – very few costs given, Level 1 – no costs

Projections• In this section you will estimate the revenue you

will earn and the expenses that your business will incur (usually done on a monthly basis)

• Costs– Leasing a building

• $15/ sq. Ft (includes utilities, taxes & Insurance)

– Salaries– Advertising– Paying back loans– Inventory

Projections

• Revenue– You must try to find a conservative figure of how

many sales you will make within a given time frame– Example: 90,000 people in Brantford, 60% adults, 10%

go to dinner on a nightly basis= 90 000 x 0.6 x 0.1 = 5400 people to try and attract– Conservative figure – you get 2 % of those people= 5400 x 0.02 = 108 people- The average plate is $20- On a nightly basis your restaurant will make $2160 in

revenue

Securing Financing

• In this section you will tell me how exactly you are going to get the financing

• If you have a total dollar figure (start up cost)– You can give dollar figures for each choice of financing– Example: $50 000 investors, $30 000 loans,

$20 000 personal funds• If you don’t have an exact dollar figure use

percentages– Example: 50% investors, 30% loans, 20% personal

funds

Financial Assignment

• Break- Even/ Profit Margin/ ROI Worksheet