Type of paper:Â | Essay |
Categories:Â | Company Budgeting Financial analysis |
Pages: | 5 |
Wordcount: | 1224 words |
Introduction
Ericsson Limited is a company that wants to deal with the selling of electronics. The owners of the company intend to find the market both locally and internationally. They want to expand their market segment to reach international markets to obtain a larger market share and become competitive globally. The owners want the company to be the leading provider of electronics all over the world. The company will have 50 employees, who comprise mainly marketers, and the others are experts in the production and design of electronics.
For the company to be able to implement this project, the owners need to understand the company’s financial needs by looking at its assets and liabilities, have a funding plan in place as well as understand the cost of obtaining the finances that will be required to carry out the project’s deliverables (Angerer et al., 2017). The company has four main shareholders who will contribute $150,000 each. Additionally, the project has also attracted two investors who will contribute $150,000 to the project. The $300,000 contributed by the investors will be used in getting the company ready for operations in different countries. The owners of the company will further borrow an additional $270,000 from a bank.
The Company’s Budget
From the above contributions, the company will have $870,000 to start all its operations and implement its project in different countries. Although the capital is intended to implement the process of starting and expanding the business to different countries, all the capital will not be used in the implementation of the company's project (Angerer et al., 2017).
The Projected Costs
For a project to be implemented successfully, the costs need to be projected wisely so that the financial needs of the company can be determined. Organizations cannot operate without having an administrative block (Hazalia, 2019). Therefore, the first projected cost will be for the building of an office. The projected cost for an office building is $90,000. Office systems, resources, security (CCTV surveillance) and sales will have a projected costs of $55,000, $65,000, $40,000, and $120,000 respectively. For international business expansion, marketing is important. Different marketing strategies should be used to pass information about the company’s products to the customers. The projected cost of the marketing of the company’s products will be $30,000. The establishment of the company's operations in different countries will be costly, and therefore is a large number of funds will be required to fund all the operations. There will also be salaries and wages of the recruited employees who must be compensated to keep them motivated. The projected costs of salaries and wages are $60,000. The company has also borrowed $270,000 from a bank at 10% per year for ten years. Therefore a projected interest cost of 10% every year should also be included in the projected budget.
Revenue Streams
Ericsson’s revenues will come from three sources. The main source of revenue for the company will be the selling of electronics in different countries. This will contribute 75% of all the revenues that the company will raise. Another revenue source for the company will be consultation services that will be provided to the customers by the company's experts. The last source of the revenues for Ericsson will be network connections to the customers who will be purchasing electronic devices like televisions. Both provisions of network and consultation services are recurring sources of revenue and will, therefore, be vital revenue streams for the company (Hazalia, 2019).
Assessment of Assets and Liabilities
The company will have very limited assets to minimize cash spending. This will be done by having a liquid capital for the start-up company for the first three years of its business operations. The company's main assets will include Land and buildings (office block), machinery and equipment, cash, accounts receivables, and prepaid expenses. The company will require these assets to perform its daily operations, be it in production of the electronics or the promotion of the products and services that the company offers.
Since the company owners will not be able to finance all the operations, the company will also incur liabilities that will enable its business operations to be fully funded. The liabilities that the company will incur include accounts payables, which is the money that the company will be owing to its suppliers. Other significant liabilities for the company include credit lines, property mortgages, tax obligations, and payrolls.
The Funding Sources
Ericsson's venture will obtain funding from several sources. The first one is the owner's equity, who will contribute equal amounts towards the project. Since it is an attractive venture, there will also be personal investments where individual investors invest in the project to get returns. The company will also rely on bank loans and other types of mortgages.
The Associated Costs of the Funding Source
The sources of funding the company comes with costs. For instance, in the first source of capital of personal contributions by the shareholders, the company will have to incur cost inform of paying the shareholders dividends. The shareholders' contributions are vital as they are used when obtaining loans as it shows the owners' commitment to the project (Yigitcanlar et al., 2018). In terms of investor funding, the company will part away with a large number of its returns as it tries to pay off the money they had borrowed from investors in the form of profit sharing. Finally, the bank loans that the company will acquire will also increase the costs of funding as the company will be required to pay interests. The company will also be expected to repay the loan principal at a specified period, and this will also be another cost associated with bank loan funding.
Sales Forecasts
The company will start its operations on September 2, 2020. The company's sales will be expected to keep on increasing from October as the popularity of the company's products and services increase. Intensive promotions and pricing strategies will also play a significant role in increasing the sales of the company (Yigitcanlar et al., 2019). As of December 31, 2020, the company's sales are expected to reach $650,000, and this will form the revenue that the company will have earned in the last four months.
Income Projections
The income projects are calculated by subtracting projected costs of producing the products and services and the projected operating expenses from the projected revenues (sales). The projected income will be calculated as $350,000- ($125,000+ $85,000, which will give a net income of $140,000. The table below shows a detailed projected income statement.
Conclusion
The company will deal with electronics like office accessories, computers, laptops, smartphones, and televisions, among many other electronics. Another important requirement that the business should ensure is that it should obtain legal licensing so that it can operate legally in those states it intends to invest.
References
Angerer, M., Brem, A., Kraus, S., & Peter, A. (2017). Start-up funding via equity crowdfunding in Germany: A qualitative analysis of success factors. The Journal of Entrepreneurial Finance (JEF), 19(1), 1-34. https://www.econstor.eu/handle/10419/197535.
Hazalia, I. D. (2019). Management and Types of Funding Sources. Business Strategies. https://ideas.repec.org/a/aci/journl/y2019id538.html.
Yigitcanlar, T., SabatiniMarques, J., Kamruzzaman, M., Camargo, F., Moreira daCosta, E., Ioppolo, G., & Palandi, F. E. D. (2018). Impact of funding sources on innovation: evidence from Brazilian software companies. R&D Management, 48(4), 460-484.
https://onlinelibrary.wiley.com/doi/abs/10.1111/radm.12323.
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