3. modül business decisions and economics

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EntrepreneurshipEducation

MODULE 3Business Decisions

Business Economics

GAZİANTEP

ZİRVE UNIVERSITY



What is a Financial Plan?

• The amount of financing that the business needs tosurvive,

• Timing of positive and negative cash flows,

•How to find lowest cost financing and how to use it.

This part of the business plan shows the possilibility tofulfill the liabilities.



To prepare a good Financial Plan

How much I should pay to produce? Costs

How much my fixed assets depriciate? Depriciation

How much loan I have? Debts

Who owes me money and How much? Receivables

How should I report my financial activities? Accounting

How much financial surplus I have ? Profit

What is the level of income ? Sales

At what price should I sell my product? Selling Price

What do we have in the firm? Assets

How much money I have? Cash

How much money do I need to continiue to produce? Working capital

How can I settle my future financing? Proforma Financial Statements



Financial Plan

Goals

Financial Needs

Internal

Financing

External Financing

Where to find? How?

(on what

conditions)

Use where? How to use?

(Conditions)



• A good financial plan involves financial control.

Financial control enables to compare the ex-ante(estimated) and ex-post (realized) values.

Ex-PostEx-Ante



Finansal Kontrol nedir?

My Estimates

Reasons

ofdeviations

and

correcting

activities.

Is there any deviation? How

big? Is it high and crucial?

What is

your end

point?



How much is the initial investment

capital of your business plan ?



Initial investment capital for your business plan

Initial investment capital requirement Table (TL)

Investment Expenditures Total Description

Research and Project preperation Expenditures Arcihtect, Engineer, Advisor etc. Specialistservices,Expenditures

Building Construction CostsMain Building, Auxiliary units, Deppo, Administrative and

social building

Machinery and Equipment Expenditures

(Domestic)The price of machineries and equipments (KDV Included)

Office Equipments Computers, Handsets, Fax machines, Internet, Furntiture etc.

Electricity-Water,Gas- Venting installation

Rent- Deposits

Carriage/transportatiın and Insurance Costs Transportation of machineries and insurance expenditures.

Installation Costs Start up costs of Machineries

Pruchasing Costs Trial production costs

General CostsNotary, Insurance, Transportation, Communication, Personnel,

advertisement etc.

Start up Expenses and Public fees Start up costs of the firm

Maintanance and Repair Expenditures Modification,Restoration etc.Transportation Costs

Electricity-Water,Gas Subsciription Expenses

Promotion costs

Unexpected costs (% 10)

Total Fixed Costs



Initial investment capital requirement Table (TL)

Investment Expenditures Total Description

Research and Project preperation Expenditures - Arcihtect, Engineer, Advisor etc. Specialist services,Expenditures

Building Construction Costs - Main Building, Auxiliary unit, Deppo, Administrative and socialbuilding

Machinery and Equipment Expenditures

(Domestic)125.000 The price of machineries and equipments (KDV Included)

Office Equipments 15.000 Computers, Handsets, Fax machines, Internet, Furniture etc.

Electricity-Water,Gas- Venting installation 1.000

Rent- Deposits 2.000

Carriage and Insurance Costs 500 Transportation of machineries and insurance expenditures.

Installation Costs - Start up costs of Machineries

Pruchasing Costs - Trial production costs

General Costs 2.000Notary, Insurance, Transportation, Communication, Employees,

advertisement etc.

Start up Expenses and Public fees 2.500 Start up costs of the firm

Maintanance and Repair Expenditures 3.000 Modification,Restoration etc.

Transportation Costs 1.000

Electricity-Water,Gas Subsciription Expenses 1.000

Total 153.000

Unexpected costs

(5% of the Total amount)7.650 Unexpected Expenditures

Total Fixed Costs 160.650



Machinery and Equipment ExpendituresMachinery Quantity Unit Cost Total Amount

Total - -

VAT %18 - -

Grand Total - -



Utility Services Machinery and Equipment ExpendituresCosts Quantity Unit Cost Total Amount

Total - -

VAT %18 - -

Grand Total - -



WORKING CAPITAL TABLE (TL)

Working Capital:

It is the amount of capital that the firm has to finance until the

products and services in that opererating cycle are sold.




CostsAnnual Operetaing

Costs

Duration

(Months) Working Capital Requirement (TL)

Raw materials and Consumables

Rent

Electiricity

Water

Communication

Gas (Heating-Fees)

Employees

Natural Gas

Repair-Maintanance

General Costs

Accounting Costs

Stationery Expenses

Advertisement-Selling Costs

Packing Supplies Expenses

Transportation Costs

Unexpected costs

Total




CostsAnnual Operetaing

Costs

Duration

(Months) Working Capital Requirement (TL)

Raw materials and Consumables 216.165,00

1

18.013,75

Rent 3.000,00 250,00

Electiricity 3.000,00 250,00

Water 600,00 50,00

Communication 1.800,00 150,00

Gas (Heating-Fees) 1.800,00 150,00

Employees 52.632,00 4.386,00

Natural Gas 0,00 0,00

Repair-Maintanance 500,00 41,67

General Costs 600,00 50,00

Accounting Costs 1.200,00 100,00

Stationery Expenses 1.000,00 83,33

Advertisement-Selling Costs 7.500,00 625,00

Packing Supplies Expenses 1.200,00 100,00

Transportation Costs 1.000,00 83,33

Unexpected costs 29.199,70 2.433,31

Total 321.196,70 26.766,39



ANNUAL OPERATING COSTS TABLE (TL)

Some operating costs can be both fixed and variable at the same

time. At this point, that operating costs should be analyzed and the

percentage of fixed and variable costs should be specified.

“Annual Operating Costs Table” shows the items of

expenditures.



Fixed Costs

These are the costs still exist in your business.even If you stop producing goods/services.



Fixed Costs…

General Expenses

• Rent and Estate Taxs

• Lighting, Heating, Communication, Stationery

• Insurance, Repairment, Maintanance• Employee Fees and Insurance Costs

• Interest and ve Brookerage Fees

• Other Expenses

Marketing and Sales Expenditures

• Promotion

• Travelling, Honouring the guests



Fixed Costs

Administrative Costs

• Stationery

• Communication

• Salaries

• OthersDepricitation

• Building

• Machinery

• Equipments

• Vehicles

• Others



Variable Costs

These are the costs that directly affect from the goods and

services.

These costs are incurred/realized at the point where goods or

services are produced.



Variable Costs

Ask yourself whether the costs are varying regarding the amount of

goods and services produced. If they vary, those are variablecosts.



Variable Costs

Raw Materials

Finished- Semi Finished Goods

Production Costs

Sales Brookerage

Temporary Employment

Delivery

Others




Cost Items Total

Expenditures

(%)

Fixed/Variable Fixed Costs Variable Costs

Raw materials and Consumables

Rent

Electiricity

Water

CommunicationGas (Heating-Fees)

Employees

Natural Gas

Repair-Maintanance

General Costs

Accounting Costs

Stationery ExpensesAdvertisement-Selling Costs

Packing Supplies Expenses

Transportation Costs

Unexpected costs

TOTAL




Cost Items Total

Expenditures

(%)

Fixed/

Variable Fixed Costs Variable Costs

Raw materials and Consumables 216.165,00 0/100 0,00 216.165,00

Rent 3.000,00 100/0 3.000,00 0,00

Electiricity 3.000,00 30/70 900,00 2.100,00

Water 600,00 30/70 180,00 420,00

Communication 1.800,00 30/70 540,00 1.260,00

Gas (Heating-Fees) 1.800,00 30/70 540,00 1.260,00

Employees 52.632,00 100/0 52.632,00 0,00

Natural Gas 0,00 100/0 0,00 0,00

Repair-Maintanance 500,00 70/30 350,00 150,00

General Costs 600,00 70/30 420,00 180,00

Accounting Costs 1.200,00 100/0 1.200,00 0,00

Stationery Expenses 1.000,00 60/40 600,00 400,00Advertisement-Selling Costs 7.500,00 80/20 6.000,00 1.500,00

Packing Supplies Expenses 1.200,00 0/100 0,00 1.200,00

Transportation Costs 1.000,00 0/100 0,00 1.000,00

Unexpected costs 29.199,70 80/20 23.359,76 5.839,94

TOTAL 321.196,70 89.721,76 231.474,94



Income Statement

Every Business prepares income statement to see their profits/lossesat the end of fiscal year.

Newly established businesses need to prepare this table frequently tosee their profitability.

This table shows the amount of revenues and costs in a fiscal year.

Debts and credits do not give any information about the firm’s fixedassests. For this reason, income statement cannot indicate the value ofthe firm itself.



Income Statement

5.2.2

Sales Revenues (A)

Variable Costs:Raw material

Other Production CostsBrokerage FeesPromotion Fees

OthersTotal (B)

Gross Profit (C=A-B)

Fixed Costs

FeesRent

Insurance Administrative Expenses AdverstisementInterest PaymentDepriciation

Total (D)

Net Profit /Loss ( E=C-D)



Income Statement

5.2.2

Sales Revenues (A) 55.000 Variable Costs: Raw Materials

Other Productions Costs

Brokerage Fees Promotion Costs

Electricity Total (B)

20.000 3.000

500

500

200

24.200

Gross Profit (C=A-B) 30.800 Fixed Costs

Employee Fees Rent Insurance

Administrative Costs Advertisement Electric-Water Heating

Depriciation Total (D)

5.000 1.000

300

200 300 100 150 200

7.250 Net profit /loss ( E=C-D) 23.550



Cash Flow Estimates (TL)

Cash Flow Statement table shows cash inflows and outflows for each timeperiod starting from the investment period.

It is not possible to see the profit of the firm from this table.

Cash flow statement analysis enables to understand not only the inflows

and outflows but also the effects of cash flows on the financial structure ofthe firm such as

Investments,

Loan Repayments,

Tax Payments.



Cash Flow Estimation/Calculation Table (TL)

Cash, at the end of the reporting period in the cash flow table,

should not be negative.

If it is negative, this indicates that financing needs for theinvestment and working capital needs are not satisfied/found.



Items At the

Start up

Months

Total1 2 3 4 5 6

Cash Inflows Sales revenues

KOSGEB Grant

Equity Capital

Debts

Bank Credits

Total Inflows

A

Cash Outflows

Variable Costs

Fixed Costs

Total Cash outflowsB

A - B = Net Cas flow C

Opening remaining D

Closure remaining C + D



ÜRETİM/SATIŞ HEDEFLERİ Production/Sales Goals

Goods/

Services

1.

M

2.

M

3.

M

4.

M

5.

M

6.

M

7.

M

8.

M

9.

M

9.

M

10.

M

11.

M

Total Unit

Cost

Sum



What is Breakeven Point?

• This point shows the amount of sales that makes total revenues

equals to the total costs.



BREAKEVEN POINT ANALYSIS

Units Sold

Operating Costs

Fixed Costs

Variable Costs

Fixed + Variable

costs

Sales Revenues

B.E.P.

Sales Revenues



Calculating Breakeven Point

Sales – Variable Costs = Gross Profit

Gross Profit x 100 = Gross Profit Margin

Sales

(Fixed Costs + Depriciation) x 100 = X = B.E.P.

Gross Profit Margin



Calculating Breakeven Point

Question 14,000 (sales) - 2,000 (Var.C) = 2,000 (GP)

2,000 (GP) x 100 = %50 (GPM)

4,000 (sales)

(1,000 (FC) + 200 (Dep.) ) x 100 = 2,400

50 (GPM)

This firm starts making profit after selling 2.400 units.



Total Investment Requirement and Possibble Financing Sources

Total Cash Needed

Investment Sum

Initial Investment

Working Capital

Total Investment



Financial Structure in Investment Period Table

Financial Requirement Sum

Initial Investment

Working Capital

Total Financial Requirement

Financial Sources Equity

Debts

Grants (KOSGEB etc.)

Credits

Total Financial Sources



Financial Structure in Investment Period Table

Financial Requirement Sum

Initial Investment 81.739,90

Equity Capital 26.766,39

Total Financial Requirement 108.506,29

Financial Sources

Equity 64.506,29

Debts 0,00

Grants 4.000,00

Credits 40.000,00

Total Financial Sources 108.506,29



Investment Expenditures Sum Explanation

1. Land Costs

2. Research and project prep. Costs

3. Land Configurations

4. Building Costs

5. Machinery and Equipment Costs

(Domestic)

6. Machinery and Equipment Costs

(Imported)7. Utility Services

. Machinery and Equipment Costs

8. Import and custom clearence Costs

9. Transportation and Insurance Costs

10. Installation Costs

11. Purchasing Costs

12. Licence Fees

13. General Costs

14. Unexpected Costs

TOTAL FIXED INVESTMENT

Initial Investment Requirement Table



Raw Materials

1 2 3 Tag 11.550,00 14.610,75 18.482,60

Combed Cotton 4.725,00 5.977,13 7.561,06

Order Form 931,50 1.178,35 1.490,61

TimeTable 2.700,00 3.415,50 4.320,61

Calender 12.993,75 16.437,09 20.792,92

Flashing Sign 700,00 885,50 1.120,16

Simple Sign 450,00 569,25 720,10

Combed Cotton

Print

26,25 33,21 42,01

Brochures 10.080,00 12.751,20 16.130,27

Invitation Letters1.050,00 1.328,25 1.680,24

Canvas 29.374,80 40.390,35 55.536,73

Toplam 74.581,30 97.576,57 127.877,30

Raw material Costs (yearly)

•increase in costs due to inflation has been added.



Labor Expenditures

Labor Expenditures 1 2 3 4 5

TOTAL

Other Costs 1 2 3 4 5Rent

Electricity

WaterFuel oil (Used by

Machineries)

Repairment and

Maintanance

Licence Fees

TOTAL

General Costs

• XX people works in this firm. Accouting service is outsourced. Values in the

table are the annual labor costs to the firm.



Marketing and Sales Expenditures 1 2 3 4 5

Business Cards

Brochures

Customer Visits

Promotional Product Sales

Advertisements

Signs

Posters

TOTAL

Marketing and Sales Expenditures



Calculating Working Capital Requirement

Items for Working Capital RequirementAnnual Operating

CostsDuration(Months)

Working CapitalRequirement

1. Raw material Stockpile

2. Finished goods Stock

3. Goods in Customer’s stock

4. Financing need for the general costs

TOTAL



1. Raw Material StockPileThis is the amount of stocks that we need to have in hand when we

stop buying raw materials for production.

It is also called as safety stock . (For instance, A firm producing plastic can

not purchase an amount of raw materials under a certain level from

PETKIM. In this case, the remaining is kept for raw material and safety

stock ) The amount of cost that the firm need to finance its stock is the

amount of cash we should have in hand.

For example: To find this value of the 1 month raw material stock, we

need to divide the raw material costs in to 12.

CALCULATING WORKING CAPITAL REQUIREMENT



2. Finished Goods Costs

This is the amount of finished goods inventory in hand when we stop

producing. In other words, it is the amount of finished goods inventory

to satisfy the received orders. This cost is calculated by multiplying unit

production cost with the number of required stocks.

(For instance, The cost of producing one unit of nappy is 0,2 . Assume that

we need 15 days of stocks to satisfy the received orders, which makes

2.000.000 units of nappies. In this case, the cost of this finished goods

inventories to the firm is 0,2*2.000.000 = 400.000, which is also a

working capital requirement.)




3. Goods in ustomer‟s Stock

In general, majority of the sales to the customers are credit sales. Hence, we

need some capital to keep on producing (to puchase raw materials) until

the time we receive the money. This is called as Goods in ustomer‟s Stock.The amount of annual raw material total costs corresponding the duration

of the credit sales forms the Goods in Customer „s Stock.

For instance, Assume that annual raw material total costs is 1.200.000. If

the sales of the firm are credited for 2 months, Goods in ustomer‟s Stock

equals to 1.200.000 *2/12= 200.000.




4. Cash Requirement for General Expenditures

“Cash Requirement for General Expenditures” is calculated by substracting

total raw material costs from total operating costs . This value is divided by

the duration that the firm needs stock (In months) to calculate the cash

need

General Expenses

Cash Needs =

(Annual total operating costs – Annual Total Raw Materials Costs

12

(We need that stock for 1 month )


General Expenses

Cash Needs =

(General Expenses+electricity + water+ Fuel+ Labor+ Rent+ Marketing Exp)

12

(We need that stock for 1 month )



How to find Financial Support?

56



INSTITUTIONS OFFERING TAX EXEMPT FOR THEENTREPRENEURS

KOSGEB Entrepreneur Support Programme – Incubation, Tax Shield

TOBB Council of Young Entrepreneurs – Incubation, Tax ShieldTechnology Parks – Incubation, Tax Shield – (Boğaziçi, ODTÜ, İTÜ,KSÜ…)

57



INSTITUTIONS GIVING SUPPORT FOR THEEQUIPMENT AND INFRASTRUCTURE NEEEDS OF

THE ENTREPRENEURS

Etohum – Incubation, Seed Funding,Educational Entrepreneurship Unit – Incubation,

Seed Funding Center,AveaLabs – Incubation

58



INSTITUTIONS GIVING SUPPORT FOR THEFINANCING NEEDS OF THE ENTREPRENEURS

212 VC – – Initial Investment (Start up Period)Aksoy Internet Ventures – Initial Investment (Start up Period)

Endeavor – Angel Finance NetworkGalata Business Angels – Angel Finance Network

Golden Horn Ventures – Initial Investment (Start up Period)Ilab – Initial Investment

Inovent – Incubation, Seed FundingInventram – Incubation, Seed Funding

Inventures – Seed Funding, Angel FinanceLabx – Angel Finance Network

Tımar Ventures – Investment CapitalTurkven – Investment CapitalVerusa – Investment Capital

Young Turk Ventures – Angel Finance 59



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