Business Plan – Financial Projections and Evaluation
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Business Plan- Financial projections and evaluation
Illustration: Vetra Traders
After researching various business opportunities, you have identified an opportunity for import of office furniture manufactured in another EU country into England. You have so far incurred £6,000 for market research, and expect to incur another £10,000 as preliminary expenses before operations commence. You have looked into legal requirements and have decided to form a limited liability company with the name Vetra Traders, which will commence operations at the beginning of 201X. The share capital of the company will comprise of 50,000 Shares to be issued at £1 nominal value each, fully paid-up.
To check the feasibility of operations and financing requirements, you decide to draw up a business plan and financial projections on a five year horizon with the following assumptions:
(a) The following will be purchased at the start of operations:
Furniture: £25,000; Vehicles: £60,000; Plant and Machinery £18,000
(b) Sales of 300 units is expected to be achieved in the first year, with a unit selling price of £1000. Sales are expected to grow at 10% a year for the next five years. Buyers require one months credit.
(c) Components costing £500 per unit will be bought from a single supplier in another EU country who will not grant any credit. The import, stock and sell plan should take into account the time cycle between payment and sale which is expected to be one month.
(d) A warehouse will be rented for £44,000 for a full year. The rent has to be paid in advance at the beginning of the year.
(e) Wages & Salaries will amount to £40,000 in the first year and £45,000 every year thereafter.
(f) General expenses (Power (light, heat, electricity, gas), Telephone, Insurance, Postage and carriage, Stationery, Equipment hire, Motor expenses, Accountancy fees, Legal/professional fees)
are expected to be £25,000 in the first year and will increase by £5,000 every year thereafter.
(g) Interest and bank charges payable are estimated at £7,000 in the first year and £10,000 per year thereafter.
(h) Depreciation can be claimed at the rate of 4% per year on Buildings, 10% per year on Furniture and 20% per year for Plant and Machinery and Vehicles. Buildings and Furniture will be
depreciated on a straight line basis and Plant and Machinery and Vehicles are to be depreciated on reducing balance basis.
(i) Tax will be payable one year in arrears at 25% on profits.
(j) You expect to pay a dividend from the