Assignment: LASA: Business Plan

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These are the capital requirements for Tuhos business A financial plan is the road map that guides a business in its financial activities as it tries to meet its objectives (Wiley, 2015). The plan will guide the business in making financial decisions and recording important financial information of the business e.g. keeping receipts of the business, statements of various accounts of the business.

1. Startup costs -250,000S$

2. Fixed Costs -9,000S$

3. Variable Costs -3,000S$

The following are some of the finances of Tuhos business of fast foods

1. Personal savings and investments – the owners of Tuhos will contribute towards the financing of the business the amounts will be contributed in the ratio of 3:2:4 in relation to startup costs.

2. Gifts from friends and other types of free money- There were many friends who promised to help in the financing of the business, but this this amount is not to be depended upon as one of the sources of finance in the business

3. Leasing and lending out personal property to gain finance of the business and later on to be returned after the second financial year of operation

4. Government grants and subsidies. As a way of promoting small businesses the government of Singapore promised to give out money to various entrepreneurs, Tuhos being one of them

5. Borrowing from financial institutions- it was agreed that some of the starting capital was to be borrowed from local banks in the country i.e. from United Overseas Bank(UOB)

Payback period is defined as the amount of time required by the business to recover the amounts used as investment in the business (Weygandt, 2015). This period is determined by calculations of the investment amounts and other the expected profits so as all the cash flows to balance.

Cash flow projections of Tuhos business

1. Starting capital =323,000

2. Loan from UOB =325,000, cash from leasing out property = 14,000

3. Expenses labor and raw materials =10,000, government license 4000S$

This is the balance sheet of the end of the first financial year

A has the general formula of Assets =Capital+ Total liabilities

This is the expected transactions during the financial year

1. Cash available 15,000

2. sales 37,000

3. Inventory 123,000

4. Prepaid rent 12,000

5. Land 129,000

6. Building 303,000

7. Furniture 53,000

8. Equipment 128,000

9. Short term loans 63,000

10. Estimated taxes 28,000

11. Expected salaries 33,000

12. Interest payable 28,000

13. Long term loan 325,000

14. Personal equity (owner’s equity)/ capital 317,000

The total value of assets is calculated by adding current assets and long term assets i.e.

The value of the sales in the year was 37000S$. Break even analysis is a production technique which compares total variables and fixed costs with sales revenue it is used to determine the revenue needed to cover total cost in any business organization it simply means the number of products it should sale to cover its costs. The break-even point is determined by dividing constant costs by the revenue then subtracts the variables per unit. Also it can be gotten from the sales by doing the following simple procedure; first divide the fixed costs by contribution margin (contribution margin is determined by subtracting the variable costs from the price of the product.

There are very many financial ratios which include; current ratio or liquidity ratio and it is used by the company to check its ability if it can pay its short term loans. It is calculated by dividing the current assets by the current liabilities. For example, in the above information

We add up the total value of assets i.e. 12,000+123000+37000+15000 =187,000

And the total value of current liabilities is 28,000+63,000+33,000+28,000 =152,000

I.e. 187,000/152,000=1.23 or 12.3:10

Secondly we have the quick ratio also known as acid test ratio. This ratio measures the ability of a company to meet its short term liabilities I t is therefore important in measuring a company’s ability to meet its shot term goals. The formula of getting the acid test ratio is given by dividing current assets plus receivables (sales on credit or cash) by current liabilities. The third ratio is called the debt ratio which shows the percentage of a company’s assets that are usually given by credit, in simple terms it measures a firm’s leverage, it is calculated by dividing total assets by the total liabilities. Debt-to equity ratio is another example of the financial ratios in business, it shows the relationship between shareholder’s equity and debt that financed the company. The formula of getting the debt to equity ratio is done by division of total liabilities by the shareholders’ equity or the total assets. Usually, higher debt ratios indicate high extent of debt financing.

Average inventory turnover is a ratio used to show how many times a firm has used up all its inventory items or how many times it has sold out and replaced the initial within a specific period of time. The formula used to get the average inventory turnover is by dividing the value of sales by the average value of inventory. Receivables turnover is used to measure the level to which a firm uses its assets (Wolfson, 2017). Also we have the payables turnover ratio which is one of the liquidity ratios which shows a company’s ability to pay its debts by contrasting net purchases (credit) with the net payables by the company. Another financial ratio is called the net sales working capital which measures a company’s efficiency in using the working capital.Net profit to sales ratio, it compares the profits made after taxes and other expenditures have been deducted from the sales. Lastly, we have the net profit to equity ratio which shows what amount of profit likely to be obtained from the investment or capital employed.

These are the possible risks that are likely to encounter Tuhos fast food business in its operations; first of all being the very first time the business is going to start in Singapore there is the risk of not getting a ready and established market as clients need to know more about these foods made in the restaurant, but also in future if the business expands it will be able to enjoy the benefits of monopoly as there will be no competitors providing similar foods and services. In addition to that, the future is uncertain therefore hence it may be considered as a risk decision but it believed trial is better than not attempting at all.

References

John Wiley & Sons.outledge. Alviniussen, A., & Jankensgard, H. (2015). Enterprise risk budgeting: bringing risk management into the financial planning process.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.

Wolfson, M. H. (2017). Financial crises: Understanding the postwar US experience. R