Create A Financial Business Plan That Will Tie Together An I

Create a Financial Business Plan That Will Tie Together an Income Statement

For this assignment, you will create a comprehensive financial business plan that integrates an income statement, purchases budget, cash budget, and a pro forma balance sheet. The final report must be neatly printed on two pages, with a hard copy submission. The initial phase involves developing a detailed income statement by projecting monthly sales and expenses, utilizing the provided estimates, and incorporating key financial assumptions. Subsequently, based on the income statement, you will prepare the purchases budget, cash budget, and balance sheet to ensure cohesive financial planning and analysis.

Paper For Above instruction

The construction of a detailed financial business plan begins with an accurate income statement, which forms the foundation for subsequent financial planning components such as the purchases budget, cash budget, and balance sheet. This process requires diligent projection of monthly sales, expenses, and cash flows based on given data and assumptions, ultimately providing a comprehensive outlook of the business's financial health.

Developing the Income Statement

The first step involves predicting monthly sales for the upcoming year, anchored on annual sales volume estimates and plotting the sales pattern throughout the months. The expected annual sales volume is 18,000 pizzas, sold at a unit price of $11.50. The monthly sales pattern varies, with the highest sales in January (8%) and March (11%), and the lowest in July (4%) and June (6%). January 2019 is anticipated to mirror January 2018 sales figures.

To calculate monthly sales revenue, multiply the expected number of pizzas sold each month by the selling price of $11.50. For instance, January sales will be 8% of 18,000, which equals 1,440 pizzas, generating revenue of $16,560 for the month. Repeat this process for all months, adjusting for the specific sales percentages to capture seasonal fluctuations.

Expenses comprise both fixed and variable costs. Fixed costs such as salaries ($48,000 annually), advertising ($3,000 annually), depreciation ($9,000), utilities ($3,000), taxes ($4,200), insurance ($2,400), and miscellaneous expenses ($2,400) are allocated evenly across the year unless specified otherwise. Variable costs like ingredients, supplies, and utilities vary directly with sales volume; ingredients cost $3.00 per pizza, supplies $0.15, utilities $0.25 per pizza, and miscellaneous expenses $0.10 per pizza. The fixed expenses are to be distributed evenly monthly, while variable expenses are calculated based on projected sales volume.

By deducting total expenses from sales revenue for each month, the income statement will depict the monthly profitability, revealing insights into profit margins, seasonal trends, and cost management effectiveness. This financial projection facilitates scenario analysis by allowing manipulations of sales volume, prices, and cost behaviors to evaluate their impact on profitability.

Preparing the Purchases Budget, Cash Budget, and Balance Sheet

Once the income statement is projected, the next step is the creation of the purchases budget, which plans raw material (ingredient) procurement to meet production needs while managing inventory levels. The key assumptions include maintaining enough ingredients at month-end to cover 20% of the next month's ingredient costs, with purchases paid 40% in the current month and 60% in the following month. This ensures liquidity and inventory control.

The cash budget forecasts cash inflows and outflows, enabling the business to manage cash flow effectively, especially for short-term borrowing if necessary. Cash inflows primarily stem from collecting sales revenue in the month of sale. Outflows include ingredient payments, salaries, advertising, utilities, supplies, insurance, taxes, miscellaneous expenses, and owner withdrawals, following specified payment schedules. For example, salaries are paid 75% in the current month and 25% in the next month, while utilities are paid in the subsequent month. Insurance and taxes are paid at designated times, and owner withdrawals are fixed at $3,000 monthly.

The initial financial position, as of January 1, includes assets such as cash, inventory, equipment, building, and land, balanced against liabilities like accounts payable, accrued expenses, and a long-term bank loan. The equity component reflects the value of owner investments and retained earnings, totaling asset liabilities and owner's equity at $120,516.

Integrating these components results in a comprehensive financial plan that provides insights into profitability, liquidity, and solvency, guiding managerial decisions on operations, financing, and investments. Regular updates and scenario analyses allow the business to adapt to changing market conditions and optimize financial performance.

Conclusion

Constructing a detailed financial business plan requires meticulous projection of sales, expenses, and cash flows. The interconnected nature of the income statement, purchases budget, cash budget, and balance sheet enables entrepreneurs to anticipate financial needs, manage resources effectively, and achieve strategic objectives. Through careful planning and continuous evaluation, the Pizza Shoppe can ensure a sustainable and profitable operation.

References

• Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management (15th ed.). Cengage Learning.
• Gitman, L. J., & Zutter, C. J. (2019). Principles of Managerial Finance (16th ed.). Pearson.
• Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2018). Essentials of Corporate Finance (10th Ed.). McGraw-Hill Education.
• Horngren, C. T., Sundem, G. L., & Elliott, J. A. (2019). Introduction to Financial Accounting (12th ed.). Pearson.
• Slack, N., Brandon-Jones, A., & Burgess, N. (2019). Operations Management (8th ed.). Pearson.
• Higgins, R. C. (2018). Analysis for Financial Management (12th Ed.). McGraw-Hill Education.
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• Chan, K. C., & Kumar, S. (2020). Financial Planning and Analysis. Journal of Business Finance & Accounting, 47(9-10), 1153-1182.
• Investopedia. (2022). How to Create a Budget. https://www.investopedia.com/terms/b/budget.asp
• U.S. Small Business Administration. (2023). Business Planning & Financial Statements. https://www.sba.gov/business-guide/plan-your-business/write-your-business-plan