Sample Coursework Paper on Business Plan

Capital Requirements

The main capital costs associated with the establishment of a furniture shop are the cost of purchasing the inventory (furniture) as well as the rent for the shop and the warehouse in which the furniture will be sold and kept before selling or before transportation, after selling. To reduce these capital costs, the company will rent out general warehouses, which will cost less, compared to constructing a warehouse. Additionally, the company will rent out a one-room office for sales. It will maximize on internet advertising and selling. This will reduce the cost of renting a large office to house the staff.

The company will start out with five members of staff: the manager, a salesperson, an accountant and two delivery truck drivers. Other services will be outsourced as and when they arise.

The company will have the following machinery at opening: two cranes for lifting furniture, and two delivery trucks to deliver furniture to the clients.

Sources of Financing

The company will have two sources of financing: owner’s capital and a bank loan.The ratio of owner’s capital to the bank loan will be 1:1.

The owner of the company will contribute the owner’s capital. The total amount of owner’s capital at the beginning of the first financial year will be $100,000.

The company will also be financed by a bank loan of $100,000 from Medix Bank at an interest rate of 11%. The payback period will be three years.

 Projected Cash Flow Statement

Projected Cash Flow Statement  
at the end of Year 1  
Net income  $   104,245.00  
Adjustments for:  
Depreciation and amortization  $       1,365.00
 $       1,365.00  
Working Capital Adjustment  
Increase in trade receivables  $                    –  
Decrease in inventories  $                    –  
Decrease in trade payables  $                    –  
 $                    –  
Cash generated from operations  $   105,610.00  
Cash flows from investing activities  
Purchase of property, plant, and equipment  $(100,000.00)  
Proceeds from sale of equipment  $     35,000.00  
Net cash used in investing activities  $   (65,000.00)  
Cash flows from financing activities  
Proceeds from issue of common stock  $   100,000.00  
Net cash used in financing activities  $   100,000.00  
Net increase in cash and cash equivalents  $   140,610.00  
Cash and cash equivalents at beginning of period  $   (33,010.00)  
Cash and cash equivalents at end of period  $   107,600.00  

 Projected Balance Sheet

Projected Balance Sheet
at the end of Year 1
Current Assets
Cash in bank  $         10,000.00
Accounts receivable  $         20,000.00
Inventory  $         50,000.00
Prepaid expenses  $            5,000.00
Other current assets  $            3,500.00
Total Current Assets  $         88,500.00
Fixed Assets
Machinery & equipment  $       105,474.00
Furniture & fixtures  $         40,000.00
Land & buildings  $         60,000.00
Other fixed assets  $         45,500.00
(LESS accumulated depreciation on all fixed assets)  $         (1,365.00)
Total Fixed Assets (net of depreciation)  $       249,609.00
Total Assets  $       338,109.00
Current Liabilities
Accounts payable  $         50,000.00
Interest payable                                –
Taxes payable                                –
Notes, short-term (due within 12 months)                                –
Current part, long-term debt                                –
Other current liabilities  $         35,000.00
Total Current Liabilities  $         85,000.00
Long-term Debt
Bank loans payable  $       100,000.00
Notes payable to stockholders                                –
LESS: Short-term portion                                –
Other long term debt                                –
Total Long-term Debt  $       100,000.00
Total Liabilities  $       185,000.00
Owners’ Equity
Invested capital  $       100,000.00
Retained earnings  $         53,109.00
Total Owners’ Equity  $       153,109.00
Total Liabilities & Equity  $       338,109.00

 Projected Profit and Loss Statement

Projected Profit and Loss Statement
at the end of Year 1
Sales  $        550,000.00
Cost/ Goods Sold (COGS)  $        200,000.00
Gross Profit  $        350,000.00
Operating Expenses
Salary (Office & Overhead)  $        150,000.00
Payroll (taxes etc.)  $                          –
Outside Services  $                          –
Supplies (off and operation)  $                          –
Repairs/ Maintenance  $             5,000.00
Advertising  $           20,000.00
Car, Delivery and Travel  $           50,000.00
Accounting and Legal                    –
Rent  $             6,000.00
Telephone  $                 900.00
Utilities  $                          –
Insurance  $                 600.00
Taxes (real estate etc.)  $                          –
Interest  $           11,000.00
Depreciation  $             1,365.00
Total Expenses  $        244,865.00
Net Profit Before Tax  $        105,135.00
Income Taxes  $                 890.00
Net Profit After Tax  $        104,245.00
Owner Draw/ Dividends  $                          –
Adj. to Retained Earnings  $        104,245.00

 Break-Even Analysis

A break-even analysis is an analysis of a company’s costs against its profits. A break-even analysis is popular among start-ups as it indicates when a company’s profits exceed its costs. The point at which a company’s income exceeds its costs is referred to as the break-even point (Suciu, 2011). From an initial capital of $200,000, the company is expected to break even after 7 months.

Ratio Analysis
Ratio Definition Value
Current Current Assets/Current Liabilities 1.04
Quick (Current Assets-Inventory)/Current Liabilities 0.45
Debt Total Liabilities/Total Assets 0.55
Debt-to-Equity Total Liabilities/Shareholders’ Equity 1.21
Average Inventory Turnover Inventory/Average day’s Cost of Goods Sold 91.25
Receivables Turnover Accounts Receivable/Average day’s credit sales 13.27
Payables Turnover Accounts Payable/Average day’s credit purchases 91.25
Net Sales to Working Capital Sales/(Current Assets-Current Liabilities) 47.83
Net Profit to Sales Net Profit/Sales 0.19
Net Profit to Equity Net Profit/Equity 0.68

 Risk Analysis

The following risks exist with respect to the operations of the furniture company:

  1. A majority of the furniture that the company will sell will be made of timber. As a result, the furniture will be very susceptible to fire. The company will have to invest heavily in fire prevention and firefighting equipment.The occurrence of a dire will be very detrimental to the company.
  2. Internet hacking is a major problem with online businesses worldwide (Suciu, 2011).
  3. Internet sales are susceptible to cons. To prevent any losses due to internet sales, no financial aspects of the orders should bebe done electronically. The local furniture industry faces a lot of competition from foreign companies who sell furniture at cheaper prices compared to local suppliers. To counter this risk, the company will invest in efficient operating systems to reduce the operating costs that are associated with the venture. This will bring down the cost of furniture and it will enable the company compete with the international furniture companies.
  4. The company will not invest heavily in delivery trucks at the beginning of the venture. This may lead to delays in the delivery of furniture purchased by different clients, if more than two clients require that furniture should be delivered to them.Toreduce this risk, the company will employ modern transportation algorithms to determine the optimum routes.

Arsham, H. (2015). Break-Even analysis.

Suciu, P. (2011). Businesses are most at risk for Internet hacking.