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Creating a financial plan for a new tourism or recreation business-Financial Plan Project Help
TRMT 324: Financial Plan ProjectPart 1 – Financial Plan Proposal (15% of mark)Part 2 – Financial Plan Framework (15% of mark)Part 3 – Complete Financial Plan (70% of mark)IntroductionWelcome to the world of make-believe! You are asked to create a financial plan for a new tourism orrecreation business. You will use your financial plan to try out your business idea to determine profitability and uncover potential financial problemsbefore you risk money creating this new business find out how much money you will need to invest to get started and provide working capital untilthe business starts making a profit set financial goals for the business develop a budget for the first year showcase your vision for the business persuade your investors to purchase shares in your business persuade the Bank to give you the mortgage and loans you needThis financial plan can be prepared individually or in pairs.Part 1: Financial Plan Proposal 15% of financial plan markYour first step is to create a Financial Plan Proposal, including a written description of your business (Word document) the planning assumptions needed to develop your financial exhibits (Excel document)Marking CriteriaThis proposal presents your business concept in a Word document, and the planning assumptions onwhich you will base your financial exhibits in an Excel document. The proposal will be marked to thefollowing criteria: Your word document presents a business concept that fits the requirements described in thisdocument, and iso written clearly in professional third-person Englisho free of grammar and spelling errorso organized in a logical manner with a cover page, section headings, a brief introductionand conclusiono refers to exhibits in your Excel document, and is consistent with the information in yourExcel document Your spreadsheets contain all required information described in this document and are comprehensive; flexible and ‘linked’ throughout; organized and logical; attractively, appropriately, and consistently formatted consistent with the information in your Word document.When I mark your proposal, I will include feedback with any recommendations for changes or additions tocreate a solid base for your financial plan.General Requirements and Assumptions It is not necessary to do any market research for this exercise. Have fun and play with your ideaswhile trying to create a plausible fantasy business. Your fictional business must be in the tourism/recreation/hospitality industry. You will be incorporating your business, therefore you should choose a business name that endswith one of the following: Inc., Ltd, Incorporated, or Limited. Locate the business wherever you like so long as you believe the location is realistic to give youthe local or tourist traffic you need.2Your business must have several sources of revenue, includingo revenue from providing services to your customers/clientso revenue from selling merchandise to your customers/clientso revenue from at least one other source – use your imagination so long as it makes senseand is not illegal.Sample business Service revenuefromSales revenue from Other revenue fromBed and breakfast Room rentals withbreakfastSmall gift shop withlocal artCatering services, orresidential eventswith a hiredpresenterWhite water rafting Rafting excursions Sales of customerexcursion videosRafting lessonsFitness centre Memberships Juice bar or pro shop Drop in classes,personal trainerconsultationsSpa Professional services:massages, facials, etcCosmetics, vitamins Meditation classes,couples massageclasses, or ??? You may choose to lease or buy land and building for your facilities. If you take over an existingbuilding, you should plan to spend a considerable amount in renovations (if buying) or leaseholdimprovements (if leasing). Have fun because this assignment requires you to spend a lot ofmoney. You should project using the first month to get your business set up – renovations, preparation,hiring, advertising, etc. You’ll open your doors the first day of the second month. You have received an inheritance from your great-aunt Bessie (or uncle Barry) who liked yourattitude. The amount of this inheritance is explained in the Excel instructions for table 8 on thelast page of this document. You will be investing this money into the business and in return thebusiness will give you common shares in the new business (remember, a corporation is a separatelegal entity from its owners). In addition, some local business people (your business associates)have become interested in your ideas and they, as a group, have expressed interest in investing1/3 of the amount you yourself will be investing. This money is an equity investment, thereforethe associates will also receive common shares in exchange for their investment. You will have75% of the shares, the other investors will have 25%.A: Word document – instructions Attractive Cover Page for your proposal Use report format for content. Contents: two to three page description of what your business is, where located, what form ofbusiness organization (remember, it’s a corporation), and where it is headed in general terms.Include a description of different areas or departments of the business (i.e. pro shop, gym, juicebar, catering, residential workshops). Include a brief discussion of the competition, explaininghow you will differentiate your business from other similar businesses currently in existence.Pictures can also enhance your report.B: Excel workbook – instructionsFormatting instructions All your planning assumptions are to be in one workbook (in a single Excel file.) Do not place more tables on any one worksheet than can be printed attractively on a single page.You must use several worksheets for your planning assumptions. Change the name on the tabs of the worksheets you use for your planning tables to indicate theTable number and name (i.e. Table 1: Capital Costs) Give each worksheet in your workbook a header with your name on the left, and your businessname on the right. Feel free to use colors and shading to enhance appearance and readability of your tables. Never enter a number in more than one location. For example, if you have calculated the totalcost for exercise equipment in the Capital Costs table and need that number again in your3Amortization table, use a formula in the amortization table to link to the original number’slocation in the capital costs table (i.e. =$C$18) Use View, Page Layout to check that sheets will print readably and attractively Be sure to spell check your Excel sheets before submitting!Required Planning Assumption Tables: Tables shown below are samples to help you visualize. Feel freeto create your own layout so long as it presents the information clearly, attractively, and in logicalorder. Table 1: Capital Costs Capital assets are assets with a life longer than one year. Detail yourlong-lived property plant and equipment assets in a table with category subtotals (for example,your categories might be: land, building, exercise equipment, office equipment, etc). Yourcapital costs should include the following Land and building purchase (separate value of land and building) PLUS cost of renovation tobuilding for your purpose (include renovation costs to the building category)ORDetails of renovation costs to a rented/leased building to convert it to your purpose (thiscategory of capital asset is called “leasehold improvements”) Equipment and furniture Any other long lived assets, organized by category with subtotals for each category Table 2: Amortization of Capital Assets In the first column, list each capital asset category. Inthe second column, create a formula to show the total cost for each category as calculated intable 1 (i.e. =CellLocationFromTable1). “Life in years” refers to how many years you expect yourbusiness to use the asset before disposing of it. Monthly amortization should be a formulacalculated based on (Cost – residual value) / (Life in years x 12). Note that land is neveramortized.(Sample) Table 2: Amortization of Capital AssetsCapital Asset Cost ResidualValueLifeIn yearsMonthlyAmortizationLand $300,000 N/A N/ABuilding 400,000 $220,000 15 $1,000Exerciseequipment200,000 20,000 5 3,000Totals $1,000,000 $240,000 $4,000 Table 3: Supplies – List supplies required for startup and estimate required monthly replacementsupplies (remember, supplies are things you need that are not immediately used up, but willnormally be used up within a year). Detail supplies in a table, with totals for startup and eachmonth. Divide your supplies into two categories – supplies with a fixed monthly cost, and thosewith a variable monthly cost based on some other variable. Each item under supplies will haveeither a fixed monthly cost, or a variable cost (not both)(Sample) Table 3: SuppliesItem Jan, 2015(StartupCosts)Monthlyreplacements(Feb-Dec)Variable %% of(if variable)Towels $1,500 1% Spa treatmentrevenuesCleaning/janitorialsupplies200 $60… additional lines as neededMonthly Totals $xx,xxx $x,xxx N/A N/ACleaning supplies willbe about $60 eachmonth. They areNOT expected tovary with revenues.Cost of towels used inspa treatments isvariable – moretreatments means moretowels will be used.Estimated cost of towelsis 1% of revenue fromspa treatments.4 Table 4: Startup Inventory – List assumptions for opening day inventory of goods to be resold.Itemize by category and total. You’ll want enough inventory to cover your highest two months ofsales. Table 5: Other Expenditures – List assumptions for startup and ongoing monthly expenses (omitamortization), including cost of goods sold (when you sell your inventory, its cost becomes costof goods sold, and you will need to replace it). Look at a sample business income statement forideas on what some of your other expenses might be. If an expense relies on another variable,detail the relationship in another column instead of putting in an absolute amount. Make the lasttwo rows in your expenditures column Mortgage Payment and Term Loan Payment, but leave theamounts blank. Be sure the Monthly Totals formula includes the blank cells in these two rows(sample) Table 5: Expenses Requiring Cash OutlayExpenditure Jan,2015(StartupCosts)Monthlyreplacements(Feb-Dec)Variable%% of(if variable)Cost of goodssold,cosmetics40% Cosmetic salesSpaprofessionalscompensation35% Spa treatment revenueAdvertising $5,000 $600… additional lines as needed, one line for each expense item. Do NOT includeamortizationMonthlyTotals$xx,xxx $x,xxx Table 6: Startup Cost Summary –This table will tell you how much money you need to start yourbusiness. Don’t worry if it’s a large amount; your finance plan will be designed to persuadeinvestors to help you raise the money. List each category of cost from the tables above includingany first month (January) costs, and the cost of both supplies and expenses for February andMarch. Do not type any numbers into this table – instead, link to the numbers in your othertables.(sample) Table 6: Startup Cost SummaryItem CostLand $300,000Building 400,000… line for eachadditional capital assetSupplies(startup/January)Supplies Feb/MarchExpenditures(startup/Jan)ExpendituresFeb/March)Totals $x,xxx,xxxThe cosmeticsyou sell will cost40% of yourselling price (i.e.You will sell a$4 item for $10)– a VARIABLEcostYou will pay spatechnicians 35% ofwhat you chargecustomers for theirservices.-VARIABLE costYou’ll do a bigadvertising blitzin January, thenplan to spend$600 a monthafter that. (Thisis a FIXED cost)5 Table 7: Financial Assumptions: This table contains the financial assumptions you will use for avariety of calculations in your financial plan. You can use the assumptions given in the sampletable below, or replace the numbers with your own realistic assumptions. Don’t crowd the pagethis table is on as you may need to add other financial assumptions as you go on.(sample) Table 7: Financial AssumptionsItem CostCorporate income taxrate26%Mortgage interest rate 6.9%5-year term loan rate 9%Line of credit interestrate10%Minimum cash balance $5,000% of sales on 30-daycredit40%% of inventory purchaseson 30 day credit60%ExpendituresFeb/March)Totals $x,xxx,xxx Table 8: Financing Sources and Cost of Capital To have a reasonable certainty of success, youneed to raise the total amount in your Startup Cost Summary before you can start the business.In addition you need a line of credit to allow you to run an overdraft if required to replace anyinventory you sell during the first two months. Luckily, you already have a start.o Remember your Aunt Bessie? The inheritance she left you is equal to 30% of the totalamount you need.o The friends who may invest will be investing 10% of the total amount you need if youproduce a convincing financial plano You hope to get a 20-year mortgage for 60% of the value of the capital assets (omit themortgage if this amount is less than $100,000)o You hope to get a 5-year term loan for the remainder of the money you needo You also want to negotiate a line of credit allowing you to overdraw your bank accountup to the amount of your startup inventoryo Create formulas to calculate the values for the 2nd column of a table similar to thesample below. Leave the other 4 columns blank.oTable 8: Financial Sources and Cost of Capital (Sample)Investment Amount Proportion % Before Taxes % After TaxesInvestment in share capital(majority shareholder)Investment in share capital(minority shareholder)MortgageTerm LoanLine of CreditTotalsThat’s it for part 1!C: SubmissionUpload both the Word and the Excel document to D2L by the assignment due date.6Part 2: Financial Plan Exhibits – 15% of Financial Plan MarkA: Additional AssumptionsYou created Excel tables 1 through 8 in your financial plan proposal. Before you prepare your pro formafinancial statements, you may need to revise these tables in response to feedback you received fromyour proposal. You may also want to revise some of your assumptions due to your own changing vision ofthis business.In addition, you will need to complete Table 8, and add two additional tables, as follows: Table 9: Loan Amortization. Complete a loan amortization table for the first 12 months of yourbusiness, for each loan or mortgage listed in table 8. (Do NOT include your line of credit loan). Table 10: Sales Assumptions. In this table, you should prepare the sales assumptions on which youwill base your pro forma statements. These assumptions will vary depending on the nature of yourbusiness. See the sample financial plan exhibits on D2L (under “Assignments”) for ideas.B: Your Pro Forma Financial ExhibitsOverviewBased on information in your financial plan proposal, develop the following financial exhibits in the ExcelWorkbook you created when doing the proposal. When preparing these statements, you will find thatyour balance sheet will be easier to calculate if you plan that in your first month you will be preparing toopen your doors (training staff, organizing advertizing, getting inventory in place, etc), and sales willbegin in the second month. Exhibit A: Sales and Expense Budget with one column for each month, and a total column for theyear. Exhibit B: Cash Budgeto Use one column for each month and a total column for the year.o After the “Cash Balance at End of Month” row, add a “Line of Credit” row, followed by afinal total of ” Balance after line of credit.” The line of credit should be calculated using anIF statement, so that the final balance is never less than $5,000. Exhibit C: Income Statement. The rows on this statement should be the same as those in the Salesand Expense Budget, and the numbers should be equal to the total of each row in your Sales andExpense Budget. Exhibit D: Statement of Retained Earnings Exhibit E: Balance Sheet.o Link Cash to your ending balance before line of credit in your Cash Budget.o Don’t forget to include accumulated amortization on capital assetso Calculate the inventory that you will have left (startup inventory + purchases of inventory(from Cash Budget) – Cost of Goods Sold (from income statement)o Calculate the amount of supplies you have left (supplies purchased from cash flow statement– supplies expense on income statemento Calculate the accounts receivable still owing to you from last month’s saleso List each category of capital asset your purchased, less it’s accumulated amortization (fromsales and expense budget)o Calculate the accounts payable you owe (=cost of goods sold from last month)o Get the balances of your loans from the ending balance on your loan amortization tableso Common Shares will be equal to the amount you invested in the business, plus any otherinvestments of equityo Retained Earnings will be equal to the balance from your retained earnings account Exhibit F: Scenario Analysis with columns for Expected Scenario (this will be the same as yourincome statement, so link to the numbers on your income statement), Pessimistic Scenario, andOptimistic Scenario.7Hints for Developing a financial plan exhibits for a New BusinessWhen creating your spreadsheet, start by reviewing your business objectives and your planningassumptions. Do they make sense? Do you want to revise them?Express your assumptions such that a number, for example, your membership fee, can be linkedwherever appropriate throughout the Exhibits. All numbers showing in exhibits should be calculated byusing formulas and links. This way you can easily change the numbers and see the effect on thespreadsheet. Have all pages of the spreadsheet linked and all in one file. Re-name and add sheets asneeded.Part 3: Financial Plan Completion – 70% of Financial Plan MarkSuggested order for completion of exhibits First develop all your sales, expense, income statement, balance sheet, and cash flow accountsbefore you add any numbers. Think about your business objectives before you deal with anynumbers. Look at the start up costs and assumptions you developed in tables 1 through 10. Be sure that you donot have any numbers put into more than 1 location (always link when referring to an amount thathas previously been put into the workbook). Consider whether you wish to change any of yourassumptions, or add to them. Next create a monthly sales and expense budget, with totals. Be sure that you do not type anynumbers into this, but use formulas to calculate amounts based on numbers and percentages in yourassumptions, and on other numbers in your sales and expense budget (you may need to add expenseassumptions as you think of new expenses). You should now be able to create a forecasted first annual income statement and statement ofretained earnings. Now create a monthly forecasted cash flow statement. Amortization will NOT be in this statementas it does not involve cash, but all your financing money will be there in the first month, and yourpurchases of capital assets and startup inventory and supplies will be included. Total the months in afinal column on the right so you can have a year total cash flow. Consider all the sources of cashgoing into the business and all the out flow of cash from the business. In this type of business itmight be helpful to do some break-even analysis. How many memberships must you sell minimallybefore you break even? Once your Income Statement, Statement of Retained Earnings, and Cash Budget are complete, youcan then complete your year-end balance sheet Finally, create the Scenario AnalysisC: Your Financial Plan Report (Word or PDF file)When you write your plan, address each item in the “Written Report” section of the marking guide. Besure to paint a work-picture of your vision of the business, and be specific and clear about your planningassumptions.Note About Your Financing RequestThis report is being prepared both as a planning document, and as a tool in selling your financingrequest. While your business partners are very supportive, your plan will have to persuade them thatyour business is a good investment for their money. Include a section in your report where youspecifically address their interests to persuade them that this is a good plan for them. In addition, youwill be going to the bank for some kind of debt financing, and this document is your main tool inpersuading the bank that you and your business are creditworthy.Address the bank’s interests and put forward reasons as to why this is a safe project for them. Take careto do a thorough discussion of the risks associated with this venture. Think about all the things whichcould go wrong and how you will react. Your Part of your discussion should be a scenario analysis. Your‘base case’ is your most likely scenario. Also present ‘pessimistic’ and ‘optimistic’ scenarios.8Marking Guide –Financial Planning Project – 100 marksProject proposal (Criteria – See Financial Plan Proposal Section) (15 points)Written Report (35 points) Cover page Table of contents, including list of Exhibits Vision of what the business will be and where it is headed in general terms; Business objectives – realistic and clear. Planning assumptions – clear summary (see below) Discussion of highlights of pro forma financial statements and cash budget Discuss risk factors and how you can reduce or deal with risks, Discussion of scenario analysis – most likely, pessimistic & optimistic; indicate assumptions usedin forecasting scenarios (does pessimistic assumption relate to risks?) Financing request and arguments for financing as previously noted (cover the 5 C’s of credit) Conclusion Refer to exhibits throughout report Clear writing and accurate grammar and spellingInclude in planning assumption discussion, as appropriate… Land and building purchase or investment in renovations and leasehold improvements, and totalcost Equipment to be purchased and total cost Nature of services and products being sold Financing assumptions Amount of accounts receivable to be given and trade credit (accounts payable) receivedExhibits, clearly labeled and presented with Table/Exhibit number and title (25 points)In addition, each sheet is examined for its appearance when printed, including readability of font sizeand colours, and appropriate use of landscape setup when appropriate Planning assumptions (including any changes needed in tables 1-7) Start up financing needs and cost of capital Loan amortization table for all loans, by month, for the first year Sales Assumptions Monthly sales and expense budgets, with a column for total for the year Monthly cash budget with a separate column for startup costs, rows for line of credit, and a totalfor the year Income Statement and Statement of Retained Earnings Balance Sheet Scenario AnalysisElectronic Spreadsheet(s) (25 points) Comprehensive; Flexible and ‘linked’ throughout; Include all important items; Organized and logical; Clear planning assumptions Attractively, appropriately, and consistently formattedSubmissionThis is a project where it might help to seek the advice of fellow students. However, each person (orpair) is expected to create a unique budget and plan created by the student(s) submitting it.Submit this project by uploading your Excel Workbook and Word or PDF document to the Financial PlanD2L dropbox by the due date/time.
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