Question

For your initial post: Assume you are going to a bank to apply for a loan for a new product you would like to manufacture and sell or provide a new service to clients. Use your imagination to think of a product or service? What types of expenses would be involved to make the product or service that would be included in your cash flow model? How would you estimate revenue for your product or service? What other factors should you consider in developing pro forma cash flows? What revenue or expense assumptions might be most affected by a sensitivity analysis?

Answer 1

The service that would be offered to prospective clients is that of personalized tuition for their children to help them learn better. The major source of revenue would be the number of subscribers to the service and the hourly charges that would be paid by them. The expense would be the fixed salaries that would be paid to the teachers.

The estimate of future cash flows can be made by selecting the city in which this service is planned to be launched and then projecting the number of total school going children and a certain percentage opting for this service. Sensitivities could be run for the market penetration and the resultant revenue generated. Other factors would be the cost of teaching aids and stationeries which may be required from time to time and which may need a cash outflow.

The revenue and expenses would be most sensitive to number of subscribers and also the number of teachers on payroll.