BY ALEXEY SHABARSHIN
10.09.2015

How to create a company's financial plan?

Invitee speakers share their knowledge, business experience and give an advisory opinion for newcomers on Rusbase in section «EVA's diary»[1]. In this article Alexey Shabarshin will continue to consider the financial planning tools in more details.


[1]EVA – Eurasian Venture Academy (EVA)


What's the financial plan?
Today we will talk about what a financial budget is and create a simple guideline for a company. I think that you will get to know great deal of interesting and useful information for you and your company.
Financial budget is a part of in-corporate planning, in other words, it is a multipurpose plan of company's work and development in terms of money. It is essential for effective use of company's resources.

Back to business.

I will use examples in order to be clearer. Let's assume that our company is an online project, which has published business news for long-standing audience. So, we will create a financial budget for this company.

What should be in this document?

It is necessary to choose a visual aid that is appropriate for the material and audience.
1. Costs of preparation (budgeting)



First step of financial calculations is creation of a budget, which is related to starting business processes.



Legal firm implementation (₽25'000)

Computers (₽100'000)

Advertising / marketing (₽50'000)

Website creation (₽60'000)

Sundryexpenses(₽? )

TOTAL:₽235'000



Once you have done straightforward calculations, it is important to understand where we will attract these funds from. Let's take a look at sources of coverage.



2. Sources of coverage



Proprietary moneys, buildings, any kinds of tangible assets

Sources of potential partners or investors

Government support

Bank loans

Other sources



It's about time we consider the main point of this article and write down a plan for income and expenses.







3. Income and Expenses plan



Expenses related to the main activity of the company (for one-year period):

Wages, including taxes, which are paid by company

₽150'000 * 12 mnth = ₽1'800'000

Monthly rent

₽35'000*12 mnth= ₽420'000

Management expenses, including accountant wages

₽30'000*12 mnth= ₽360'000

Principal and interest payments for loans

₽40'000 *12 mnth = ₽480'000

TOTAL Expenses:₽3'060'000



Income related to the main activity of the company (for one-year period):

Earnings from the main activity of the company

₽600'000 *12 mnth= ₽7'200'000

Earnings from affiliate programs

₽200'000 * 12 mnth = ₽2'400'000

TOTAL Income: ₽9'600'000



Specification of service pricing and volume of sales are two of the most crucial things for accurate calculation of income (you can take this data from marketing plan, in case if one exists).

When the Income and Expenses plan is completed, you need to combine it with Budgeting plan in order to understand how profitable and effective your business is.

Let's recap, we have the following calculations:

₽9'600'000 – (₽3'060'000 + ₽235'000) = ₽6'305'000

₽6'305'000 represents Earnings before interest and tax. It means that this business can be called effective.

Creating these types of documents is not a time-consuming process but it will give you an opportunity to see current financial situation and drawbacks of your company.



Useful coefficients



There are also some useful coefficients, which will help you estimate financial health of a company.



ROS (Returns on Sales)



ROS = Operating profit/Net Sales



Liquidity ratio


Current ratio = Cash in banks and on hand + Short terms deposits (Current Assets)/Current Liabilities.




Efficiency ratio shows how efficient your investments to working capital


Fixed asset turnover = Net sales revenue/ Net working




EVA (Economic Value Added)
This one is my favorite coefficient*


EVA = Net operating Profit after tax (NOPAT) - Invested Capital*WACC (Wagted average Cost of Capital)


Plan your company's finance and all of your plans will be achievable!

I'm the friendly VC for SMART entrepreneur
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