This assignment has a management accounting orientation. It draws on management accounting topics that include budgeting, sensitivity analysis, cost volume profit analysis and decision-making. The assignment is designed to develop the student's ability to develop a well-reasoned financial plan. The plan is to be written from the perspective of a small start-up business that is seeking to document its worthiness to a bank in order to secure a loan. Students have the choice of working on their own, or in teams of up to four people.
Assignment details
You have approached a bank and asked for a loan in connection with a small business you are planning to start. The bank has requested that you prepare a detailed financial plan in support of your loan application
Assumptions/Criteria
· To simplify the analysis, this is a one product merchandising or retail business.
· Assume the following cash receipts pattern: 40% collected in month of sale; 55% in month after sale; 5% bad debts.
· Assume the following cash payments pattern for inventory purchases: 30% paid in month following the purchase, 70% paid two months after the purchase.
· Ignore GST and any other taxes.
· The loan you seek will result in a debt / equity ratio of 1.5.
Guidelines for submitting your work.
SECTION A: WORD DOCUMENT
Your work is to be submitted online and presented using 10 font Microsoft Word, single space formatting with standard margins. Your submitted assignment is to be a maximum of fifteen pages (including coversheet) and presented as follows:
Part 1) Written Report to bank:
The first part of the assignment is to be a one page written report to the bank. This page should include a description of the nature of the planned business activity, as well as a visionary statement that indicates the business owner's longer-term aspirations for the firm and implications for capital expenditure. Include any additional assumptions made (beyond those specified in the assignment) and give an indication of the debt exposure.
Part 2) A one year plan (individual budgets can be broken up by month or quarter) which includes:
One page dedicated to each of the following:
- Data Input sheet
- Sales budget
- Inventory purchases budget
- Other operational budgets
- Budgeted Income statement in contribution format
- Cash flow budget
- Budgeted Balance Sheet
- Capital expenditure budget
- Sensitivity analysis of profit and cash flows:
a. If sales volume increases / decreases 10% from that expected
b. If variable costs increase by 20%
Part 3) A long term plan (5 years) which includes:
One page dedicated to each of the following:
- Sensitivity analysis of income statement (in contribution format)
- Sensitivity analysis of cash flow budget
- Capital expenditure plan.
Sensitivity analysis is to document profitability and cash flow under three sales volume scenarios: best case, most likely, and worst case scenarios.
Part 4) Cost volume profit assessment
One page dedicated to:
Breakeven analysis and margin of safety analysis (in units and sales dollars). The margin of safety analysis should assess three sales volume scenarios: best case, most likely, and worst case scenarios.
SECTION B: EXCEL REPORTS
Submit an Excel spreadsheet of the business's financial plan (to enable verification of figures and formulae appearing in the Microsoft Word document)
SECTION C: GROUP REPORT
For students working in groups, each individual must complete a small summary outlining their contribution to the completed assignment. This summary is to be typewritten and is to be a maximum of 200 words per student. This summary is to be signed by each member of the group. This is to ensure that the information represents an accurate reflection of each individual's input to the project.