Prepare A Financial Plan For The Organization You Selected

Prepare A Financial Plan For The Organization That You Select For Your

Prepare a financial plan for the organization that you select for your business plan. Describe the organization, 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, loans, equity, venture capital, etc. Evaluate the requirements of each of the funding sources that you plan to use. Analyze the risks that are associated with 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. Create a table or chart to display this information. Estimate direct costs, including capital, marketing, labor, equipment, and inventory/supply costs. Prepare a budget that includes starting balances, monthly costs, loan/investment payments, cash flow projections, and required revenue.

Create a profit-and-loss statement for a 3-year period. Provide a revenue forecast, stating realistic assumptions, such as growth per year, in your projections. Cite references to support your assignment. Format your citations according to APA guidelines.

Paper For Above instruction

Developing a comprehensive financial plan is a critical step in ensuring the viability and sustainability of a new business. This document details the financial strategy for a selected organization, including an overview of the business, funding requirements, sources of capital, risk assessment, and detailed financial projections. The purpose is to articulate the financial needs and plans in a structured manner that supports strategic decision-making and stakeholder confidence.

Organization Description and Business Case

The organization selected for this financial plan is a startup artisanal bakery, "Sweet Creations Bakery," located in downtown Austin, Texas. It is a small-scale enterprise focused on providing high-quality, organic baked goods including bread, pastries, and cakes. The business aims to serve health-conscious consumers seeking gourmet baked products made from organic ingredients. The market analysis indicates a rising demand for artisanal, health-oriented baked goods in the area, with an increasing consumer preference for locally sourced ingredients.

The primary business objective is to establish a strong brand presence within the local community and expand to online sales within the first three years. The bakery aims to generate revenue primarily through direct retail sales, catering services, and online orders. Expansion plans include opening additional outlets and offering baking classes, which will diversify income streams and increase brand recognition.

Funding Necessity and Sources

The startup funding need is estimated at $250,000, covering equipment purchase, initial inventory, marketing efforts, and working capital. The funding will enable the business to set-up a commercial kitchen, acquire necessary baking ovens, refrigeration units, display cases, and hire initial staff. The business case emphasizes the importance of securing diverse funding sources to mitigate risks associated with over-reliance on a single investor or loan type.

The primary sources of funding considered include self-funding, bank loans, angel investors, and venture capital. Self-funding will be minimal and primarily include personal savings. Bank loans are attractive due to lower interest rates but require collateral and detailed financial documentation. Angel investors provide equity investment in exchange for ownership stake; however, they seek high-growth potential and clear exit strategies. Venture capital funding offers significant capital infusion but often requires substantial equity and aligns with high-growth expectations. Each sources’ requirements and associated risks are carefully evaluated to select the most appropriate options for the bakery’s growth trajectory.

Risk Analysis of Funding Sources

Self-funding minimizes debt but limits initial capital and personal financial risk. Bank loans offer predictable repayment schedules but pose collateral risks and debt obligations if sales forecasts are not met. Angel investment brings in capital with less immediate repayment concern but involves relinquishing some ownership and control. Venture capital provides substantial funding but demands rapid growth and typically involves active investor involvement, which may influence business decisions. The risks are weighed against each source's potential benefits; for a small startup, a combination of bank loans and angel investment emerges as a balanced approach.

Cost of Capital and Funding Rates

Estimating the cost of capital involves assessing current APRs for selected funding options. Based on recent market data, bank loan APRs for small business loans in Texas average around 6% to 8%. Angel investors typically seek a 20% internal rate of return (IRR), while venture capitalists target annual returns between 25% and 35%. These rates influence the overall cost of capital and are critical in planning repayment schedules and investment attractiveness.

The following table summarizes the estimated APRs and associated costs:

Estimating Costs and Creating the Budget

Direct costs encompass equipment, inventory, marketing, labor, and ongoing supplies. Initial equipment costs are estimated at $75,000, including ovens, refrigeration, and display units. Inventory procurement, marketing, and soft launch expenses total approximately $50,000. Monthly operational expenses, including staff wages, rent, utilities, and supplies, are projected at $20,000.

The business starts with initial capital of $250,000, with monthly cash flow projections based on expected revenue growth. Revenue is forecasted to grow by 15% annually, considering market trends and expansion plans. Monthly revenue is projected at $40,000 in the first year, increasing to $46,000 and $52,900 in subsequent years.

Loan repayment schedules, with interest rates set at 7% annually over five years, are incorporated into the cash flow forecast. The budget includes the following key components:

• Starting balance: $250,000
• Monthly costs: $20,000
• Loan payments: approximately $4,000/month
• Projected revenue: Year 1: $480,000; Year 2: $552,000; Year 3: $635,200
• Profit margins are expected to stabilize at 15% after initial growth period.

Financial Projections: Profit and Loss Statements

A three-year profit-and-loss statement forecasts the financial performance based on the above assumptions. Year 1 shows revenue of $480,000, with direct costs estimated at 85% of revenue ($408,000) due to initial marketing and setup costs. Gross profit is projected at $72,000. Operating expenses, including salaries, rent, utilities, and marketing, amount to $240,000 annually. Loan interest and depreciation expenses further reduce net income, resulting in an estimated net loss of approximately $130,000 in Year 1.

By Year 2, revenue increases to $552,000, with improved gross profit margins of 15%, leading to gross profit of approximately $82,800. Operating expenses rise slightly due to expansion activities. By Year 3, revenue reaches approximately $635,200, with gross profit of $95,280 and net profit showing signs of recovery and growth, highlighting an expected profitability by the third year.

Conclusion

The financial plan underscores the importance of strategic funding, cost management, and realistic projections. The combination of bank loans and angel investment balances debt and equity risks, facilitating growth without over-leverage. Current market APRs influence interest expenses, and detailed cost estimations provide clarity for cash flow management. Projected profitability in Year 3 signifies the potential for sustainable growth, validating the initial funding and operational strategies. Continuous monitoring and adjustment of financial strategies will be critical as the business progresses, ensuring long-term success and stakeholder value creation.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Graham, J. R., & Harvey, C. R. (2001). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics, 60(2-3), 187-243.
• American Bankers Association. (2023). Small Business Lending Rates. https://www.aba.com
• U.S. Small Business Administration. (2023). Small Business Investment Company Program. https://www.sba.gov
• Investopedia. (2023). Cost of Capital. https://www.investopedia.com
• The Henry J. Kaiser Family Foundation. (2022). Venture Capital Investment Trends. https://www.kff.org
• PitchBook Data. (2023). Global Venture Capital Trends. https://pitchbook.com
• Statista. (2023). Small Business Funding Statistics. https://www.statista.com
• Federal Reserve Bank of Dallas. (2023). Commercial Loan Rates. https://fedinprint.org
• Kaplan, S., & Norton, D. (1996). The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press.