Innovation and Entrepreneurship
UNIV 200
Week 9:Business Plan Basics 1- Finance
Crafting a Winning Plan
Business Plan
Business Plan Basics
 Why is financing important?
 What should be included in the financial plan?
 What are criteria can be used to measure
financial performance ?
Ice Breaker Question
Financial Forecasts
Income statement
Cash flow statement
Balance sheet
Trading account and calculations of gross
profit
The
first part leading up to the calculation of
gross profit is called the trading account. The
trading account has three components which
are
Sales Turnover
Cost of goods sold
Gross profit
Trading account and calculations of gross
profit
Sales turnover is the money coming into the
business from providing a trade - for example,
selling goods, manufacturing goods, providing a
service. The calculation for sales turnover is
quantity sold x selling price.
E.g. Abc trade sold 3000 ice creams, with the selling price
of 2 AED.
Calculate the sales turnover?
Price
Trading account and calculations of gross
profit
Sales turnover is the money coming into the
business from providing a trade - for example,
selling goods, manufacturing goods, providing a
service. The calculation for sales turnover is
quantity sold x selling price.
E.g. Abc trade sold 300 Ice creams, with the selling price
of 2 AED Calculate the sales turnover?
Trading account and calculations of gross
profit
Cost of goods sold includes the costs directly
linked to providing that trade.
 for example, the cost of buying in the goods or
the raw materials used to produce the goods.
 The calculation for cost of goods sold is
opening stock + purchases - closing stock.
Key Terms for Trading Account
Cost of goods sold - the actual value of
stock used to generate sales.
Opening stock - the value of stock in a
business at the start of a financial year.
Closing stock - the value of stock at the end
of a financial year.
Trading account and calculations of gross
profit
Example if for example, I was to buy 10 bottles
of milk to make the ice creams, the cost of 10
bottles is 100 AED. What if I had 3 spare bottles to
start with and 2 bottles left at the end?
opening stock + purchases - closing stock
3 (30) + 10 (100)- 2 (20) = 11 (110)
Trading account and calculations of gross
profit
Gross profit is the amount of money left or the surplus
after the cost of goods sold has been deducted from
the sales turnover.
The calculation for gross profit is sales turnover - cost
of goods sold.
I sell the ice creams for 600 AED ( sales turnover)- 110 (CoGS).
My gross profit is 490 AED.
Structure of Trading Account.
Exercise
Cost= (Purchases + Opening Stock)-Closing
Stock
1. 250 units
2.Selling price 300
3.Purchase 1500
4.Opening inventory 2000
5.Closing inventory 2500
Q1. Calculate the gross profit?
Trading Profit and loss
Account to calculate net profit
Net profit is the money after all other
expenses have been deducted from gross
profit and any other revenue income has
been added.
Calculation of net profit is gross profit expenses + other revenue income.
Net Income for Ice creams
 Printing costs-75 AED
 Utility bills-50 AED
 Transportation-25 AED
 Total expenses 150 AED
 What is the net profit after selling 300 ice creams?
gross profit – expenses+ other revenue income
490 - 150= 340 AED
ABC Sales & Production
Production & sales volumes
Initial sales
forecast
Units
Jan
Feb
March
April
May
June
July
Aug
Sept
Oct
Nov
Dec
Total
400
400
440
280
100
100
80
80
200
360
360
440
3240
400*
180
20
0
40
260
480
720
800
920
880
840
+prodn
180
240
320
320
320
320
320
160
320
320
320
240
3380
- sales
400
400
340**
280
100
100
80
80
200
360
360
440
3140
End stocks
180
20
0
40
260
480
720
800
920
880
840
640
Production
Start stocks
Sales values
Revised sales
forecast
Units
Value (£‘000)
@ £135
Jan
Feb
March
April
May
June
July
Aug
Sept
Oct
Nov
Dec
Total
400
400
340
280
100
100
80
80
200
360
360
440
3140
54
54
45.9
37.8
13.5
13.5
10.8
10.8
27
48.6
48.6
59.4
423.9
ABC Costings
Variable costs:
Direct materials
£32.00
Direct factory costs
£ 5.00
Fixed costs (based on 3780 units):
Direct labour (salary)
£106,000
Factory overhead
– depreciation
£
8,700
– factory lease
£ 14,400
£129,100 ÷ 3780
=
£34.15
Total average cost of producing each board
£71.15
Average sales price
£135.00
Average profit
£63.85 (47.3%)
ABC Income Statement
Sales
3140 x £135
=
£423,900
Cost of sales
3140 x £71.154 =
£223,422
Gross profit
£200,478
(47.3%)
Marketing and general costs £55,000
Professional fees
Net profit
(33.6%)
£ 3,000
£ 58,000
£142,478
Forecasted Income Statement for the year ending 31.12.2018
AED
AED
60,000
Sales
Cost of goods sold
Direct Materials
5000
Others
4000
Total cost of goods sold
(9,000)
Gross Profit
51,000
Operating Expenses
Rented villa
12,000
Salary
19,000
Power
1,000
Water
2,000
Advertising
5,000
Insurance
1,000
Telephones
1,000
Total
(41,000)
Other Revenue Income
2000
Profit before Taxes (Net Profit)
12,000
Balance sheet
A balance sheet is a snapshot of a
business's net worth at a particular
moment in time, normally the end of a
financial year.
Balance sheet Purpose and Use
Balance sheet, which calculates the net
worth of a business by balancing what the
business owns against what it owes.
A balance sheet therefore states the value
of a business.
It is a summary of everything that the
business owns (its assets) and owes (its
liabilities).
Balance Sheet - Presentation
A vertically presented balance sheet is
presented as:
intangible assets
• + fixed assets
+ current assets
• - current liabilities
• - long-term liabilities
• = net assets
ABC Balance Sheet - Assets= Liabilities+ equity
Machinery (cost – depreciation) = £55,680 - £8,700
Stock (number of boards x average cost)
Debtors
=
= 640 x £71.15
(Nov + Dec sales) = £48,600 + £59,400
Prepayments (9 months lease costs) =
£960 x 9
£ 46,980
=
£ 45,538
=
£108,000
=
£
Total Assets
Creditors (Nov + Dec purchases) = (320 + 240 boards) x £37 =
8,640
£209,158
£ 20,720
Overdraft (from Cash Flow Forecast)
£
3,960
Founders’ loan capital
£ 12,000
Founders’ share capital
£ 30,000
Profit for the year
£142,478
Capital and liabilities
£209,158
Entrepreneurs needs to determine the type of funding they seek:
 Debt
 Equity
 Public funding
Funding (financial capital) goes into one of three categories, if not all:
 Fixed capital
 Working capital
 Growth capital
• Fixed capital is the portion of the annual spend that is used to purchase
fixed assets, which may include land, buildings, computer equipment, et
• Working capital (aka operating capital) is the capital spent on the
operations of the business, which is also a financial metric used to
represent operating liquidity available to a business.
• Growth capital, sometimes referred to as expansion capital, is the money
invested to grow the business.
Source: Alkhazraji, Khalid M. and Shawn Olds N. (2016)
Source: Alkhazraji, Khalid M. and Shawn Olds N. (2016)
1. The Seed Round of Funding:
It is a self-financing stage
where the entrepreneur
puts in his or her time,
money and intellectual
property, and reach out to
friends and family for more
funding.
2. When the first round of
funding is exhausted, the
entrepreneur typically look
toward angel investors to
commit to the next round of
funding. Angel investors
look at ventures in an
industry that they have
experience with so that
they might serve as
strategic investors and
advisors, bringing new ideas
and new networks along
with their capital.
3. At the growth/expansion
stage, entrepreneur seeks
venture capital funding. A
venture capital fund is
typically industry-specific
and set up as a fund,
usually in a partnership
form, where the venture
capital firm is the general
partner and each of the
investors in the fund are
limited partners.
4. The final steps in funding
that an entrepreneur will
typically seek are either an
investment from a private
equity firm or an initial
public offering (IPO). These
steps usually cannot be
pursued without having
solid revenues and
demonstrate significant
assets.
Source: Alkhazraji, Khalid M. and Shawn Olds N. (2016)
Return on Investment
 https://thecorporatestartupbook.com/calculator/