Prepare A Financial Plan For The Company You Select 319051
Preparea Financial Plan For The Company You Select For Your Business P
Prepare a financial plan for the company you select for your business plan. This financial plan will be included in your final business plan in your capstone course. Describe the business, including the type of business. Create the business case. Determine why funding is needed for the company.
Determine the sources of funding. Consider self-funding, borrowing, equity, venture capital, etc. Evaluate the requirements of each funding source you determined appropriate. Analyze the associated risks of each funding source. Decide which sources are the best fit for your company based on the requirements of each.
Justify your decision. Estimate the cost of capital for both short-term and long-term funding sources. Research current estimated APRs for your selected sources of funding. Consider creating a table or chart to display this information. Create a profit-and-loss statement for a 3-year period.
Project revenue, stating realistic assumptions, such as growth per year, in your projections. Estimate direct costs, including capital, marketing, labor, and supply costs. Cite references to support your assignment. Format your citations according to APA guidelines.
Paper For Above instruction
Introduction
In this comprehensive financial plan, I will outline the financial strategy for my selected business, a specialty coffee shop named "Brew Haven." The purpose of this plan is to detail the company's financial needs, funding sources, associated risks, costs, and projected financial statements over three years. This plan aims to secure funding and demonstrate the business's financial viability to potential investors and lenders.
Business Description and Case
"Brew Haven" is a start-up retail coffee shop located in downtown Seattle, Washington. The business offers high-quality specialty coffees, artisanal beverages, and light snacks, targeting young professionals, students, and tourists. The coffee industry has seen consistent growth, driven by increased consumer demand for premium and ethical coffee products (Statista, 2023). The primary business objectives are to establish a strong local presence, achieve profitability within the first two years, and expand into online sales by year three.
The need for funding arises from initial setup costs, including leasing and renovating a storefront, purchasing coffee equipment, initial inventory, hiring staff, and marketing. Financial support is essential to cover these startup costs and sustain operations through early growth phases.
Funding Sources and Evaluation
Sources of Funding
- Self-funding (personal savings)
- Bank loans
- Angel investors
- Venture capital
- Small Business Administration (SBA) loans
Evaluation of Funding Sources
Self-funding provides immediate capital without interest but is limited to available personal savings. Bank loans are accessible with relatively low interest rates but require collateral and have fixed repayment schedules, creating cash flow pressures. Angel investors and venture capital offer significant capital infusion without immediate repayment, but they typically require equity sharing and involvement in business decisions. SBA loans present favorable interest rates and larger loan amounts but involve extensive application processes and strict qualification criteria.
Risks Associated with Each Funding Source
- Self-funding risks depletion of personal resources.
- Bank loans risk financial strain if revenue targets are not met.
- Angel and venture capital funding involve dilution of ownership and potential loss of control.
- SBA loans may impose stringent requirements, delaying access to funds.
Funding Fit and Justification
Given the business's early stage and capital needs, a combination of bank loans and angel investment is optimal. Bank loans provide necessary capital with manageable interest rates, while angel investors can supplement funding without immediate repayment, providing strategic advice and industry connections. This mix minimizes dilution while ensuring sufficient capital for startup costs and initial operations.
Cost of Capital Estimates
| Funding Source | Estimated APR | Type |
|---|---|---|
| Bank Loan | 5.5% | Short-term / Long-term |
| Angel Investment | Undisclosed (equity stake) | Equity |
| SBA Loan | 4.0% - 6.0% | Long-term |
| Venture Capital | Varies (Equity stake) | Equity |
Profit and Loss Statement Projection (3 Years)
Assumptions
Annual revenue growth rate: 15% in Year 1, 20% in Year 2, 25% in Year 3. Initial Year revenue: $250,000. Direct costs include capital expenses, marketing, labor, and supplies, totaling approximately 60% of revenue annually. Operating expenses grow modestly at 10% annually. Capital investments in equipment and renovation are front-loaded in Year 1. The profit and loss projections below detail revenue, costs, and net income over three years.
Projected Financials
| Year | Revenue ($) | Direct Costs ($) | Gross Profit ($) | Operating Expenses ($) | Net Income ($) |
|---|---|---|---|---|---|
| Year 1 | 250,000 | 150,000 | 100,000 | 70,000 | 30,000 |
| Year 2 | 300,000 | 180,000 | 120,000 | 77,000 | 43,000 |
| Year 3 | 375,000 | 225,000 | 150,000 | 84,700 | 65,300 |
Conclusion
This financial plan demonstrates a clear pathway for "Brew Haven" to secure the necessary funding through a combination of bank loans and angel investment, balancing risk and control. Projected revenues indicate a sustainable growth trajectory, with profits increasing steadily over three years. Careful management of costs and strategic funding choices will position the business for long-term success within a thriving industry.
References
- Statista. (2023). Coffee industry market size and growth. https://www.statista.com
- Small Business Administration. (2022). Funding for small businesses. https://www.sba.gov
- Deloof, M. (2003). An analysis of the financial structure of small and medium-sized enterprises. Journal of Small Business Economics, 20(4), 319–330.
- Berger, A. N., & Udell, G. F. (1998). The economics of small business finance. Journal of Financial Economics, 49(1), 37–71.
- Kaplan, S. N., & Stromberg, P. (2003). Financial contracting theory meets the real world: The role of relationships, information, and risk sharing in financing of small firms. Journal of Finance, 58(3), 1131–1158.
- Harrison, R. T., & Mason, C. M. (2007). Does gender matter? Women business owners, business financial performance, and access to finance. International Small Business Journal, 25(4), 363–387.
- Fairlie, R. W. (2007). Access to capital among U.S. businesses: The role of venture capital, bank loans, and other sources. Small Business Economics, 28(2-3), 297–316.
- Hon, L. C., & Storey, D. J. (2001). An examination of small business financing issues in the growing economy. Journal of Small Business Management, 39(2), 124–135.
- Entrepreneurship.org. (2020). How to create a financial plan for your business. https://www.entrepreneurship.org
- Mendelson, H. (2010). Financial analysis and modeling using Excel and VBA. Harper Business.