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Unformatted text preview: Chapter 6 FINANCIAL PLANNING: SHORT TERM AND LONG TERM FOCUS In this chapter, we focus on projecting financial statements into the future both short-term and long-term. The availability of cash is what drives the entrepreneurial venture. Inadequate cash often constrains the ventures ability to grow, is a primary cause of financial distress, and can result in bankruptcy even though the venture may be profitable in an accounting sense. The process of preparing projected financial statements also helps the entrepreneur anticipate and estimate additional external financial capital needed to support the business plan. LEARNING OBJECTIVES 1. Construct a cash budget 2. Describe how projected statements of cash flow relate to cash budgets 3. Explain why projected statements of cash flow are important to the entrepreneur 4. Understand the concept of a sustainable sales growth rate 5. Understand the process of identifying the quantity and timing of additional funds needed to support the ventures sales forecasts 6. Connect sales growth rates to the amount and timing of additional funds needed 7. Describe the percent-of-sales method for preparing financial plans CHAPTER OUTLINE 6.1 FINANCIAL PLANNING THROUGHOUT THE VENTURES LIFE CYCLE 6.2 SURVIVING IN THE SHORT RUN 6.3 SHORT-TERM CASH-PLANNING TOOLS 6.4 PROJECTED MONTHLY FINANCIAL STATEMENTS 6.5 CASH PLANNING FROM A PROJECTED MONTHLY BALANCE SHEET 6.6 BEYOND SURVIVAL: SYSTEMATIC FORECASTING A. Forecasting Sales for Seasoned Firms B. Forecasting Sales for Early-Stage Ventures 6.7 ESTIMATING SUSTAINABLE SALES GROWTH RATES 6.8 ESTIMATING ADDITIONAL FINANCING NEEDED TO SUPPORT GROWTH A. The Basic Additional Funds Needed Equation B. Impact of Different Growth Rates on AFN C. Estimating AFN for Multiple Years 6.9 PERCENT-OF-SALES PROJECTED FINANCIAL STATEMENTS A. Forecasting Sales B. Projecting the Income Statement C. Projecting the Balance Sheet D. Forecasting the Statement of Cash Flows E. Financing Cost Implications Associated with the Need for Additional Funds SUMMARY 89 Chapter 6: Financial Planning: Short Term and Long Term DISCUSSION QUESTIONS AND ANSWERS 1. Provide a description of the financing cost implications associated with a ventures need for additional funds. The cost of obtaining additional funds may be explicit, such as additional interest expense associated with debt. Interest expense shows up directly on the projected income statement and, in turn, impacts the AFN shown on the balance sheet. In contrast, added costs associated with obtaining equity capital from venture capitalist and other investors are based on the expected rates of return the investors receive when they exit their investments. These implicit costs do not show up on the projected financial statements....
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This note was uploaded on 12/05/2009 for the course FIN Fin 595 taught by Professor Shabbir during the Spring '09 term at CSU Dominguez Hills.
- Spring '09