Question

Assume your starting a new burger King franchise,what are some of the key financial assumptions you will have. For instance, assumptions of not having a capital hence why you need a loan. pls list and explain atleast 5 key assumptions.

Answer 1

The purpose of the financial assumptions of a new business plans is we need it if we are seeking investment from different investors like Venture Capital, Individual investors. Any bank or lender will also ask to see those numbers to make sure we can repay our loan. The below are some of key financial assumptions as part of our new business.

- Sales Forecast: Project our sales over the course of three to four years. And also need to have our Cost of sales in order to estimate the the Gross Margins i.e., Sales - Cost of Sales. Its a useful number for comparing with different standard industry ratios.

- Create an Expense Budget: We need to understand how much its going to cost us to actually make the sales we have forecast. Differentiste between Fixed and Variable costs. Lower fixed costs means less risk.

- Develop a Cash Flow Statement: This is the statement that shows cash moving in and out of the business. We need to start by projecting a cash-flow statement by monthly. We need to have a ratio for how many invoices will be paid in cash, 30 days, 60 days, 90 days etc. And also we should have the projection for our expenses to be paid in the periods to come.

- Income Projections: This is our proforma profit and loss statement which gives the details of forecasts for our business for the coming years. We need to use the numbers that are used in our Sales forecast, Expense budget and Cash Flow projections. ''Sales less COGS'' is Gross Margin and ''Gross margin less Expenses, Interest and Taxes'' is Net Profit.

- Break Even Analysis: The Break Even point is when our business's expenses match our sales or Revenue. If our business is variable, at certain point of time, our overall revenues exceeds our expenses including interest.

- Projected Balance Sheet: We have to deal with assets and liabilites that are not in P&L statement and need to project the net worth of the business at the end of the Fiscal year. Need to estimate what we will have on hand, month by month for Cash, Receivables, Inventory, Land and Buildings. And then we need to figure out the liabilites we owe like Accounts payables, Outstanding Loans.