This assignment has a management accounting orientation. It draws on management accounting topics which include budgeting, sensitivity analysis, cost volume profit analysis and decision-making. Assignment is designed to develop student’s ability to develop a well-reasoned financial plan. The plan is to be written from 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 choice of working on their own, or in teams of up to four people.
You have approached a bank and asked for a loan in connection with the small business you are planning to start. The bank has requested that you prepare a detailed financial plan in support of your loan application.
To simplify analysis, this is a one product merchandising or retail business.
Suppose the following cash receipts pattern: 40% collected in month of sale; 55% in month after sale; 5% bad debts.
Suppose 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 would result in a debt / equity ratio of 1.5.
Guidelines for your work.
SECTION A: WORD DOCUMENT
Your 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 must include a description of the nature of the planned business activity, as well as the visionary statement which indicates business owner’s longer-term aspirations for the firm and implications for capital expenditure. Include any extra assumptions made (beyond those specified in the assignment) and give an indication of the debt exposure.
Maximum length of part 1: one page
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:
• If sales volume increases / decreases 10% from that expected
• If variable costs increase by 20%
Total length of part 2: nine pages
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.
Total length of part 3: three pages
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.
Total length of part 4: one page
SECTION B: EXCEL REPORTS
Prepare 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
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.