KANSAS HIGH SCHOOL BUSINESS PLAN COMPETITION
Financial Worksheet
Refer to the worksheet instructions if you have any questions about using the worksheets that are provided here.
NOTE: Many of these calculations will involve assumptions on your part. Since most of you do not currently operate a business, there will not be actual dollar amounts to use for costs, and revenue will be based on estimates. These worksheets are geared more toward helping you understand these financial measurements rather than penalizing a lack of ability. One main thing to consider, however, is that your assumptions make sense. For example, if you are the only employee, don't make calculations based on working for 200 hours in a week. If you plan to have no rent expense, state in the assumptions that you will be working in your parent's basement.
MORE NOTES: When you fill these worksheets out, you will have to type in your actual entries. The numbers that are in the worksheets are for example purpose only. There are some equations (the spaces colored green) that are already programmed into the spreadsheet for you. You only need to fill in the spaces in yellow. You can add more information than just the basic entries that are included in these worksheets by inserting rows and columns. If you run into problems with the worksheets, there are sections with definitions and worksheet instructions
Economics of One Unit
This is the calculation to determine how much money you will make for each unit of a product that you sell. If your product is a service, there will not be any materials, but there will be labor cost. (For example if you are designing web sites, you may charge $300, but it will take an employee 10 hours at $15 per hour to build the site.) If you are reselling a good, you may have materials and labor. (If you are installing a computer server, you may charge $1500 for a $1000 server and 3 hours of an employee's time at $20 per hour.)
Variable Costs
Variable costs are the costs that will fluctuate based on the number of units sold. (For the purpose of this business plan, the assumption is that utilities and rent will be fixed and not variable costs.)
Fixed Costs
The fixed costs are those costs to operate the business that will stay the same regardless of the number of products that are sold. Examples of these type of expenses are building rent, advertising, utilities, insurance and non-production salaries. The fixed cost calculator will let you enter data for based on a monthly cost and then compute it for a three month quarter. The worksheet is set up for three years worth of entries on a quarterly basis.
Break Even Analysis
The break even analysis is the tool that you use to calculate how many units that you need to sell to break even (the point where you cover all expenses and begin to make a profit. First, fill in all of the fixed monthly expenses that you expect to have. (Remember, these are expenses that will not change, regardless of how much you sell.) These will add up to your total fixed costs The break even analysis can be calculated at the bottom of the fixed costs calculator. To do this, divide the total monthly fixed costs (Light green box on the fixed costs calculator) by the gross profit per unit (Green box in the economics of one unit calculator.)
Estimated Sales Worksheet
Once you have determined the amount of fixed costs that you will probably face, and have determined what amount of sales it will take to break even, you can use the estimated sales worksheet to figure out what level of sales you will need to make a profit. Keep in mind that you will not be able to sell an unlimited amount of your product as soon as you start your business. It will take you time to build up a customer base and sales will probably grow slowly rather than rapidly. Some of your fixed costs may increase as your sales grow.
The following fixed cost assumptions were made:
(See more assumptions at bottom of page)
1) Rent was only $300 per month because a workshop was rented from one of the student's parents.
2) Advertising expense grew to promote sales growth.
3) Salaries were given to the owners, and in the third year, a raise was given.
4) Salaries were doubled for the summer months. (June - September)
5) Temporary help was hired, first in the summer, and then became an ongoing expense.
The following estimated sales assumptions were made:
1) Sales would increase during the summer months because of additional time that the owners could devote to the business.
2) Advertising increases would lead to improved sales.
Start-up Costs
After these first worksheets, you can start to see how your company will use money. Using these as a foundation, you can build an idea of how much money it will take to get your company started. You will need to have enough money to cover your expenses until you have a steady stream of income coming in. You need to state not only the amount of money required, but who will provide it and whether the money will be an investment in your company with an expectation of a share of future profits, or whether it is a loan that will be expected to be paid back.
Balance Sheet
The balance sheet is a way to see what the company owns compared to what it owes. What is left over is the stake that the company owner has in the firm. The balance sheet is like a financial picture of the company, because it looks at the company at a single moment in time. The balance sheet that you will fill out has four year's of entries. Year 0 is the day that the company starts. Year 1 is at end of 12 months of operation. You can use the difference between the two entries to determine what changes happened over that year.
The balance sheet has a right and left side. The right side is the ASSETS of the company. This is both the cash that the company has, plus the things that it owns. The left side is the LIABILITIES of the company, and the OWNERS EQUITY in the company. The right side and left sides will equal each other: ASSETS = LIABILITIES + OWNERS EQUITY. Think of ASSETS as all the stuff that you have. Your ASSETS are equal in value to what you owe on the stuff (your LIABILITIES) plus the value that you have left over. Put another way, OWNERS EQUITY = ASSETS - LIABILITIES. Think about a car to see this. Say you have a Mustang (an ASSET) worth $5,000. Maybe you borrowed some money from a parent to help buy the car. If you make a $100 payment every month for two years (a LIABILITY of $2,400) then your OWNERS EQUITY is $2,600. ($2,600 = $5,000 - $2,400)
Income Statement
The income statement is a way to measure the performance of a company by looking at the amount of profit that it generates. The income amount is also referred to as NET PROFIT. The basic equation for the income statement is REVENUES - EXPENSES = INCOME. The revenue line is the projected net sales revenue line from the estimated sales worksheet. The expenses are taken from a few areas. First are the cost of goods sold and fixed costs from the estimated sales worksheet. The next expense is depreciation. Depreciation is the amount that an asset declines in value over time. (For these worksheets, compute depreciation based on the following rules: 1) Property and land - $0 residual value, depreciated in even amounts over 20 years [80 quarters]. 2) All other fixed assets, - $0 residual value, depreciated over 3 years [12 quarters].) Interest paid will show the amount of interest paid on any short term and long term loans. All loans should be figured based on a 10% interest rate compounded yearly. The final expense will be for taxes, which will be computed at a flat rate of 25%.
Cash Flow Statement
The cash flow statement measures how much of a change the company had in terms of actual dollars from one year to another. The amounts that are used on this worksheet will come from the income statement and the balance sheet. The phrase "Cash is King" is especially relevant to the cash flow statement. When a company has positive cash flow, it is making more cash than it is spending. When a company has negative cash flow, it is spending money faster than it is collecting it. A negative cash flow results in what is known as the "burn rate", which tells you how fast the company is spending it's money. Having a burn rate is not a good thing.
Ratios
Like the income statement, balance sheet, and cash flow statements, financial ratios are ways that you can evaluate how well a company is doing. There are a number of different ratios that can be used to measure a company. We will look at Return on Investment, Payback Period and Profit Margin here.
Return on Investment
This looks at how much money that the company makes for every dollar that is invested in the company. The ratio is computed as follows:
Payback Period
This is the amount of time that it will take a company to make back the initial investment. The amount is computed in years to payback.
The Payback period is between year two and year three.
Profit Margin
The profit margin is computed by dividing the net profit by the sales.
Assumptions
Here you need to explain why you used the numbers that you did in the above worksheets. There needs to be a reason why you used the numbers and some support. It is not enough to say that you will sell a certain amount of product and generate so many dollars. Show why you feel that these numbers are possible and where you found that information.
Assumptions For Start-Up Costs - How much money will be needed to get your business off the ground? Be sure to include enough to cover your operating expenses for the first year or until you are able to make a profit. What type of equipment will you need? Will you get any loans to cover equipment or will you use start-up cash? Will you have any initial requirements for deposits on renting a workplace or setting up a telephone? How much inventory will you need to start production?
Assumptions For One Unit - If you are building something, know what parts are required and how much they cost. Determine how long it will take to build the product or to perform the service. Find out what competitors charge or what people are willing to pay for your item.
Assumptions For Monthly Expenses - Some things to consider: Where will the business be located and what costs will be associated with using that location? How much will it cost if you need a web site? What about expenses for insurance or shipping? Will you need to hire other employees to sell your product or help with administrative tasks or bookkeeping? Will you
pay your team wages besides those from building the product or performing the service?
Assumptions For Estimated Sales - When a business first starts, it can be hard to get initial sales. How do you expect to build your sales and what will propel the sales growth? Determining how and why you expect a certain level of sales are often the hardest assumptions to make.
Assumptions For Balance Sheet - If you use an accounts payable and accounts receivable system, were the amounts based on a percentage of sales and purchases or some other method? What about inventory amounts? Do you expect additional investment or a need to purchase equipment after starting the company? |
