Financial Plan for Apple Business Plan.
Student’s First Name, Middle Initial(s), Last Name
Institutional Affiliation
Course Number and Name
Instructor’s Name and Title
Assignment Due Date
Financial Plan for Apple Business Plan.
Description of the Organization, Apple
Apple Electronics plans to roll out its business activities before the end of the year 2021. The company intends to join the more lucrative and highly profitable electronics industry. Apple will specialize in the man future, distribution, and sale of various household electronic products, including Television sets, smartphones, wearables, and computer hardware. The company plan to take on the existing competition with the production and delivery of electronic gadgets with the latest features which most of the competitors’ product lacks.
To achieve its business objectives and goals in its operations, the company needs a comprehensive and sound financial plan. The Financial plan will provide a guideline on various critical areas, which will be essential in managing its finances in line with its business philosophy. As a guide, the financial plan will act as a blueprint in guiding the effective management of the incomes or revenues of the company, effective management of cash flow, capital, and investments made by the company (Grozdanovska, 2017).
Reasons for Funding
As a start-up company, Apple Electronics will require reliable, affordable, and adequate sources of capital for various reasons. The reasons for requiring the funding are as follows;
(i) Working Capital: this relates to the available amount of cash or funds in the company that are spent executing the company’s various business activities or operations. The activities that are to be funded using the available working capital include; paying bills, salaries, and relevant inventories (Kennedy, 2020).
(ii) Acquisition of Assets: to run effectively and to deliver on its business goals and objectives, Apple Electronics will require specific assets in its operations. The assets facilitate the production and delivery of the company’s products. The various assets that would require by the company include; machinery, delivery vans, office equipment, and inventory handling equipment, among others. Acquiring these categories of assets will require adequate funds to identify where to source them from (Kennedy, 2020).
(iii) For funding growth activities, once the company began operations, there will always be the need to grow. The various forms of business growth that would require adequate and timely funding includes; organic growth, which focuses on increasing the company’s products, and market outreach. Strategic through especially laying focus on tapping into sections of the market that have remained untapped or underserved by the existing companies. Such aspects of growth will require that the company have access to adequate funding both in the short-term and long term (Kennedy, 2020).
(v) For funding research and development (R&D), to remain competitive, Apple Electronics will need to continuously release products that are unique from those of the competitors while at the same time meeting the different customer expectations. Designing, producing, and selling such unique products requires both time and funds in product research and development (R & R&D). Financing the R&D will require the company to have adequate finances in its possession always (Kennedy, 2020).
The sources of funding.
There are different sources available for the company, each of the sources have their merits and demerits. Therefore, it is prudent for the company to critically compare and contrast each of the sources based on their requirements, merits, and the risks associated with each of the sources.
(i) Self-funding: this method of funding will require the company owners to bring into the business their respective sources that would be critical in meeting the company’s financial needs. The possible sources of personal funding from the company owners shall include; personal savings, individual assets converted to the business, insurances, and equity in real estate. In the long run, self-funding by the business shall involve ploughed-back the profits realized from its operations. Compared to the other sources of funds, especially from third-party vendors, self-funding has minimal requirements (Connolly & Jackman, 2017).
Merits of Self-funding
Self-funding allows the company owners to have complete control over their company. There will be no need of ceding some control to other investors or lenders whose actions could be inconsistent with the company’s goals and objectives. Self-funding grants the company owners’ full ownership rights and full enjoyment of the profits (Connolly & Jackman, 2017).
Self-funding saves the company the burden of regularly being required to pay for interests or repayment amounts for re-financing an earlier taken loan or debt for financing the company’s operations and activities(Connolly & Jackman, 2017).
Demerits of Self-funding
Usually, investing personal savings in the business would strain the family finances. This could lead to a financial crisis in a family. Self-funding will deny the company access to valid assistance in the form of the knowledge provided by the investors or venture capitalists (Connolly & Jackman, 2017).
(ii) Borrowing and loans
Debt financing or funding business operations involve borrowing loans from banks or other third party lenders. The loans come with various requirements, especially on the need to provide collateral and security. Various tools of evaluating the company’s performance and financial position usually through the financial statements such as the balance sheet and income statements. Most bank loans come with conditions on when and how much to repay, including interests with penalties attached to them (Connolly & Bank, 2021).
Merits of loans
Suitably serves to adequately finance the various financial needs of the company both in the short term and in the long term. The company can make arrangements with the bank to tailor the repayment period, interest, repayment instalments, and the term for the loan to suit the company’s cash flow and income generation(Connolly & Bank, 2021).
Making timely repayments by the company will grant it a positive credit rating by the bank. This could be handy in seeking loans from other banks or funding institutions (Connolly & Bank, 2021).
Demerits of loans
Loans are more inflexible as they require constant and regular repayments. They also include additional fees such as arrangement fees, interest, insurance, covenant compliance costs, and professional advice; all these increases the amounts of repayments to be made by the company to the bank. Defaults in payment could lead to lower credit scores which would be detrimental to the company when attempting to seek loans from banks or other lenders (Connolly & Bank, 2021).
(iii) Equity sources
Equity sources provide funding to the company in exchange for shares in the company. The investors will expect a share of the company’s profits while also needing to control the operations of the company (Connolly & Bank, 2021).
(iv) Venture capital: Just like the equity investors, venture capitalists will also provide the company with the required funding in full exchange for controlling and providing professional expertise to the company (Connolly & Jackman, 2017).
Merits of Equity and venture capitalist funding
There are no repayment requirements by the funding providers. The company will not be under any obligations to make repayments to the lenders. No interests are also charged on the amount of funding provided to the company (Connolly & Jackman, 2017).
The business will be exposed to less risks. The risk of failing and becoming bankrupt will highly be minimal since issues such as interest payments will not be applicable.
Both options of funding will essentially bring onboard investors with diverse industry skills. Since they feel their funds are directly involved in the company, they will strive to deliver their best of business knowledge to facilitate the company’s success (Connolly & Jackman, 2017).
Demerits of both Equity and venture capitalists funding.
Both funding options leads to the dilution of control over the company by the owners. The company owners will cede a lot of ownership and decision making rights to the investors and stockholders. Much of the findings will be made and determined by the stockholders and the shareholders.
The costs of both funding options will be higher in the long run than that of debt financing.
Both financing methods will require a longer time and more effort in seeking the right investors and stockholders. The longer duration of getting the funding would most likely derail the company’s operations due to the inadequacy of finances to fund the company’s functions.
Sources of Finance best fit for the company
Equity funding and venture capitalists funding will present the company with the best funding sources for its activities. The two sources will give the company adequate time to grow financially and stabilize. The company will not have to start re-financing the debts like taking loans (Connolly & Jackman, 2017).
Secondly, getting funded by both sources; equity and venture capitalists, the company will have the advantage of incorporating the investors in its management, a process that would help bring in the right expertise and industry knowledge to the start-up company, which will help position the company strategically in the market(Connolly & Jackman, 2017).
The cost of capital for both short-term and long-term funding sources.
| Source of Financing | Amount | % Annually | Short-term Cost
(1-5 yrs.) |
Long-term Cost
(5-10yrs.)_ |
| Equity Financing | $150,000
|
8.25% | $61,875 | $123,750 |
| Venture Capitalists | $250,000 | 25% | $312,500 | $625,000 |
| Total For each source | $374,375 | $748,750 | ||
| Total cost of capital from both sources | $748,750 | |||
Estimation of direct costs (Annual)
| Item | Estimated Costs |
| Capital | $74,875 |
| Labor | $122,812 |
| Equipment | $130,812 |
| Inventory | $11000 |
| Marketing | $60,500 |
Preparation of a budget for the company
Monthly budget
| Item | Opening balances | Monthly costs | Loan repayment | Cash flow Projections | Required Revenue |
| Amounts | – | $33,333.25 | $74,875 | $1,236,250 | $1,128,041 |
A profit-and-loss statement for a 3-year period (Forecast)
| Item | 2021 | 2022 | 2023 |
| Revenue | $1,128,041 | $1,410,051.43 | $1,762,564.29 |
| Cost of Goods Sold | $875,654 | $654,785 | $545,890 |
| Gross Profit | $252,387 | $755,266.43 | $1,216,674.29 |
| Operating Expenses | $125,560 | $100,215 | $98,650 |
| Taxes | $12500 | $12500 | $12500 |
| Net Income | $114,327 | $642,551.43 | $1105,524.29 |
References
Connolly, E., & Bank, J. (2021). Access to small business finance. RBA Bulletin, September, viewed January.
Connolly, E., & Jackman, B. (2017). The Availability of Business Finance. RBA Bulletin, December, 55-66.
Grozdanovska, V., Bojkovska, K., & Jankulovski, N. (2017). Financial management and financial planning in the organizations. FINANCIAL MANAGEMENT, 9(2).
Kennedy, R. Y. (2020). Analyzing the Financial Resources of the Business. In Handbook of Financial Planning and Control (pp. 13-25). Routledge.
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