Spread Knowledge

Virtual University of Pakistan Video Lectures, Handouts, PPT, Quizzes, Assignments & Papers

MGT602 - Entrepreneurship - Lecture Handout 30

User Rating:  / 0

THE FINANCIAL PLAN

LEARNING OBJECTIV ES

  1. To understand why positive profits can still result in a negative cash flow.
  2. To understand the role of budgets in preparing pro forma statements.
  3. To learn how to prepare monthly pro forma cash flow, income, balance sheet, and sources and uses of funds statements for the first year of operation.
  4. To explain the application and calculation of the break-even point for the new venture.
  5. To illustrate the alternative software packages that can be used for preparing financial statements.

THE FINANCIAL PLAN

A. The financial plan provides a complete picture of:

  1. How much and when the funds are coming into the organization.
  2. Where the funds are going.
  3. How much cash is available?
  4. The projected financial position of the firm.

B. The financial plan provides the short-term basis for budgeting and helps prevent a common problem-lack of cash.


C. The financial plan must explain how the entrepreneur will meet all financial obligations and maintain its liquidity.


D. In general, the financial plan will need three years of projected financial data for outside investors.

Read more: MGT602 - Entrepreneurship - Lecture Handout 30

MGT602 - Entrepreneurship - Lecture Handout 28

User Rating:  / 0

THE ORGANIZATIONAL PLAN (Continued ….)

Transferability of Interest

  • Each of the forms of business offers different advantages as to the transferability of interest.
  • In a proprietorship, the entrepreneur has the right to sell any assets.
  • In the limited partnership, the limited partners can sell their interests at any time without consent of the general partners. A general partner cannot sell any interest unless specified in the partnership agreement.
  • In a corporation shareholders may transfer their shares at any time.
  • In the S Corporation, the transfer of interest can occur only as long as the buyer is an individual.

Capital Requirements

The need for capital during the early months can become one of the most critical factors in keeping a new venture alive.

  • For a proprietorship, any new capital can only come from loans or by additional personal contributions. Often an entrepreneur will take a second mortgage as a source of capital. Any borrowing from an outside investor may require giving up some equity. Failure to make payments can result in foreclosure and liquidation of the business.
  • In the partnership, loans may be obtained from banks or additional funds may be contributed by each partner, but both methods require change in the partnership agreement.
  • In the corporation, new capital can be raised by: