Question

What's the importance of the following when starting a new business?

• Projected development stage outlays (start-up cost) and sources of and capital
• Three-year annualized income statement projections
• Break-even analysis
• Initial and three-year thereafter balance sheet projections
• Loan debt service projection
• Expected cash inflows and outflows for the first 12 months
• Analysis of financial feasibility

?

Answer 1

Projected development stage outlays(start-up cost)-Especially in the early stages ,start up costs require carefull planning and meticulous accounting.Start up cost include

1. The business plan
2. Research expenses
3. Borrowing cost
4. Insurance ,License and permit fees
5. Technological Expenses
6. Equipment and Supplies
7. Advertising and promotion

So Launching a new business can be invigorating .However getting caught up in the excitement and neglecting the details can lead to failure .

Sources of capital:Putting all eggs in one basket is never a good business  strategy.So soucrces can be from 1. Personal Investment 2. Bank loans .etc

Capital can be from Debt or Equity .Each type of capital has its own benefits and drawbacks so company should analyse carefully and capital structure.

Three year annualized income statement projections:Annualized income data is important because it helps neutralize the effects of seasonality and dilute the impact of non-recurring abnormalities in financial results,such as temporary changes in demand ,expenses or cash flows

Break-Even Analysis:It is an importanr aspect of a good business plan ,since it helps the business to determine the cost structure ,and the number od units that need to be sold in order to cover the cost or make profit.

Initial and three year thereafter balance sheet projections :Management should use balance sheet projections to help identify whether the need for working capital that need to be funded in excess etc

Loan debt coverage ratio :It is the measurement of the cash flow available to pay current debt obligations .

Expected cash inflows and outflows :The cash flow repport is important to users to know about the business cash position .For a business to be successful it must have sufficient cash position .

Analysis of financila feasibility:Feasibility report will help us to know how a certain proposal can work in a long term basis or endure financila risk that may come .It is also helpful in recognising potential cash flow ,and also helps planners focus on the project and narrow down the possibilities.