Cash Flow (Pro Forma statement) Financial Planning

Financial statement Cash flow pro forma statement Income statement Balance sheet Usually prepare for 3 years projection

Project Implementation cost Involve all type of cost to enable company to start the operation (whether short term or long term) Purpose: to estimate total budget required in order to start with the business Short term cost working capital required until business able to gain sales working capital depends on how long business able to get profit from the sales Long term cost Involve capital investment i.e. machine, plant and equipment

Project Implementation cost Capital Investment Land Buy or own – list in project cost Lease- a part of deposit Building Buy or own – current cost of the building Lease – list in deposit Renovation Machine and Equipment Rent – list in deposit Hire purchase – current cost Furniture and office equipment Vehicles

Pre operation expenditure Expenses for : Legal fee Company registration License fee Expertise services Feasibility studies Insurance etc

Working Capital (Modal Pusingan) Allocation for financing the daily operation such as Buy raw material Inventory Administrative expenses Factory overhead Other expenses involve company’s operation Working capital is usually prepared for 1 to 3 months depending on how long the company able to gain its first sales

Contigencies To overcome increases in material price Miscalculation during preparing the project implementation cost Usually 5 – 10% from project cost

Expenditure

Administrative expenditure Salary Fee Accounting Bank charge Maintenance and repair Electric, water and telephone Insurance Rental Legal fees Post & stamp Printing & stationary Staff training travelling

Marketing expenditure Promotion 1% of total sales Example: Sales projection = 283,880 Promotion expenditure = 2840 Delivery Fluctuate from year to year Estimate from previous year average rate Vehicle expenditure Semi fluctuate Fixed component Road tax Insurance of vehicle Fluctuate component Estimation of 0.3% from sales

ADMINISTRATIVE EXPENDITURE MARKETING EXPENDITURE OPERATIONS EXPENDITURE Fixed Assets RM Land & Building 50,000 Furnitures 9,000 Signboard 5,000 Machinary and Equipment 100,000 Computer van 70,000 Lorry 80,000 Renovation 30,000   Forklif 130,000 Equipment 7,000 Working Capital Salary, EPF & SOCSO 10,000 advertisement and promotion 1,000 Raw Materials & Packaging 39,000 Travelling allowance 100 Carriage Inward & Duty petrol/diesel 250 Salaries, EPF & SOCSO 3,363 Salary,EPF & SOCSO 900 500 Other Expenditure 200 300 400 Pre-Operation Deposit (rent, utilities, etc.) 7,200 Business Registration & Licences Insurance & Road Tax for Motor Vehicle 2,000 2,200 1,350 TOTAL 118,800 81,750 355,613

depreciation Total = RM672408 Fixed Assets Cash Existing F. Assets ABC Construction PROJECT IMPLEMENTATION COST & SOURCES OF FINANCE Project Implementation Cost Sources of Finance Requirements Cost Loan Hire-Purchase Own Contribution Fixed Assets   Cash Existing F. Assets Land & Building 50,000 40,000 10,000 Furnitures 9,000 600 5,400 3,000 Computer 5,000 1,000 4,000 Renovation 30,000 24,400 5,600 Equipment 7,000 2,000 Signboard 3,500 1,500 van 70,000 45,000 21,000 Machinary and Equipment 100,000 34,000 58,000 8,000 Lorry 80,000 25,000 Forklif 130,000 105,000 23,000 Working Capital 2 months Administrative 20,004 15,004 Marketing 4,500 3,300 1,200 Operations 85,726 75,726 Pre-Operations & Other Expenditure 15,050 9,050 6,000 Contingencies 10% 61,128 58,128 TOTAL 672,408 469,708 132,400 70,300 depreciation Total = RM672408

Depreciation schedule For every fixed assets excluding land Methods: Straight line methods Declining balance

Machinary and Equipment Equipment Lorry Signboard Forklif van FIXED ASSETS Econ. Life (yrs) Furnitures 5   Computer Renovation Machinary and Equipment Equipment Lorry Signboard Forklif van

Fixed Asset Furnitures Cost (RM) 9,000   Method Straight Line Economic Life (yrs) 5 Annual Accumulated Year Depreciation Book Value - 1 1,800 7,200 2 3,600 5,400 3 4 6 7 8 9 10 Depreciation value per year = (Original Price – Scrap Value)/Economy Life = (9000 – 0)/5 = RM 1800/ year Scrap value = estimation of asset value at its last year of economy life

Source of finance

Loan LOAN (if required) Interest rate 10% Loan duration 5 Interest payment method* 2 * Method: 1 = flat rate 2 = annual rest

HIRE-PURCHASE (if required) Interest rate 5% Hire-purchase duration 8

Hire Purchase Loan Fixed Assets Cash Existing F. Assets ABC Construction PROJECT IMPLEMENTATION COST & SOURCES OF FINANCE Project Implementation Cost Sources of Finance Requirements Cost Loan Hire-Purchase Own Contribution Fixed Assets   Cash Existing F. Assets Land & Building 50,000 35,000 15,000 Furnitures 9,000 600 5,400 3,000 Computer 5,000 1,000 4,000 Renovation 30,000 24,400 5,600 Equipment 7,000 2,000 Signboard 3,500 1,500 van 70,000 45,000 21,000 Machinary and Equipment 100,000 34,000 58,000 8,000 Lorry 80,000 25,000 Forklif 130,000 105,000 23,000 Working Capital 2 months Administrative 20,000 Marketing 4,500 3,300 1,200 Operations 85,726 75,726 10,000 Pre-Operations & Other Expenditure 15,050 9,050 6,000 Contingencies 10% 61,128 58,128 TOTAL 672,404 464,704 132,400 75,300 Loan Hire Purchase

ABC Construction LOAN & HIRE-PURCHASE AMMORTISATION SCHEDULES LOAN REPAYMENT SCHEDULE HIRE-PURCHASE REPAYMENT SCHEDULE Amount 464,704   132,400 Interest Rate 10% 5% Duration (yrs) 5 8 Method Baki Tahunan Year Principal Interest Total Payment Principal Balance - 1 92,941 46,470 139,411 371,763 16,550 6,620 23,170 115,850 2 37,176 130,117 278,822 99,300 3 27,882 120,823 185,881 82,750 4 18,588 111,529 66,200 9,294 102,235 49,650 6 33,100 7 9 10 464704 x 10% 92941+46470 RM464704 5 years 464704-92941

Pro forma statement

Cash inflow and cash outflow for operation cost or buying fixed asset Cash sales, capital(in cash), loan, account receivable Cash outflow Raw material, administrative expenditure, factory overhead etc Balance of cash at certain period of time Usually prepared for 3 years of operation 1st year is in monthly basis Prior to pro forma statement, sales forecasting must be prepared first (from marketing planning)

Monthly basis SALES PROJECTION Month 1 3,600 Month 2 4,000 Month 3 4,800 Month 4 Month 5 Month 6 6,000 Month 7 Month 8 6,400 Month 9 Month 10 Month 11 Month 12 Total Year 1 64,800 ToTal Year 2 74,520 Total Year 3 89,424 Monthly basis

OPERATIONS EXPENDITURE Fixed Assets RM Machinary and Equipment 100,000 Lorry 80,000 Forklif 130,000   Working Capital Raw Materials & Packaging 9,000 Carriage Inward & Duty Salaries, EPF & SOCSO 3,363 petrol/diesel 500 Other Expenditure 400 Pra-Operasi Deposit (rent, utilities, etc.) Business Registration & Licences Insurance & Road Tax for Motor Vehicle 1,000 1,350 TOTAL 325,613 PURCHASE PROJECTION Month 1 9,000 Month 2 10,000 Month 3 12,000 Month 4 Month 5 Month 6 15,000 Month 7 Month 8 16,000 Month 9 Month 10 Month 11 Month 12 Total Year 1 162,000 ToTal Year 2 186,300 Total Year 3 223,560

CASH COLLECTIONS FOR SALES assume CASH COLLECTIONS FOR SALES In the month of sale 70% 1 month after sale 20% 2 months after sale 10% Total 100%

10% + 20%(of the 2nd month sales) 70% 20% MONTH Pre-Operations 1 2 3 4 5 6 7   CASH INFLOW Capital (Cash) 75,300 Loan 398,704 Cash Sales 2,520 2,800 3,360 4,200 Collection of Accounts Receivable 720 1,160 1,360 1,440 1,680 TOTAL CASH INFLOW 474,004 3,520 4,520 4,720 4,800 5,640 5,880 10% + 20%(of the 2nd month sales)

CASH PAYMENTS FOR PURCHASES In the month of purchase 80% 1 month after purchase 20% 2 months after purchase   Total 100% assume 80% 20% Operations Expenditure   Cash Purchase 7,200 8,000 9,600 Payment of Account Payable 1,800 2,000 2,400

tax

tax LHDN imposed tax to company depends on: Sole propriety and partnership - imposed tax on individual income Company under company act – imposed tax on the profits

KWSP

kwsp employer contribute 12% employee contribute 11% From the employee salary

reference Wahab, I.A.,Ibrahim, M.D., Ahmad, F. (2002)‘Rancangan Kewangan Perniagaan Kecil dan Sederhana’, 1st Ed. Prentice Hall. Malaysia