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Hello,
I have to prepare a P&L (profit & loss) document for a startup business. The document has to represent 3 - 5 years. The data below is just an outline of what I was planning to use. This is a fictional company. The business that I decided to start is an online bookstore. The business will be operated from my home. I have been trying to get data on other online bookstores like Amazon and Borders, but I am not sure how to go about this.
The first year the Web site had 1,500 members ($10.00 annual membership fee)
By year 3 there will be 15% increase in membership
The average book trade or sale on the Web site is $200.00 (the company receives 5% of the sale)
By year 3 10,000 book trades and sales
1 Full Time employee the first year ($28,000)
1 Part Time employee the second year ($14,000)
The business is being operated out of my home so there is no rent expense.
Commputers first year (2) $4,000 each
Commputers second year (1) $4,000
Printer/copier/fax first year $500.00
Transportation/Hotel cost first 3 years $5,000
Office furniture first year $500.00
Marketing consultant first year $1,500
Web site Designer first year, $2,000
Posters, literature $1,000
Your work this week will vary depending on what type of business plan you are working on, a business plan for a start-up business or an established business.
- Your goal for either type of business is to create a complete and well-supported pro forma P&L document. In a typical business plan, you would generally be required to include a Balance Sheet and a Statement of Cash Flow, but, for the purposes of this course, you will stick to a P&L statement. If you are working on a plan for an established business, you must review historical financial data in order to complete your projections, and obtain detailed financial operating statements for a minimum of three years and preferably five years. If you are working on a plan for a start-up business, you will reflect on your particular industry, and research and analyze comparable businesses in your industry.
- In preparing the statements, it is commonplace to start with a monthly analysis for the first operating year, a quarterly analysis for the second and possibly the third operating year and an annual analysis for the fourth and fifth operating years. In most start-up businesses, profit is not expected to be achieved until the third operating year or until a point where the operations are normalized or 'stabilized.'
- Be sure to peruse the Supplementary Resources for this week for supporting articles and Web sites for this assignment.
The Assignment
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Obtain detailed financial operating statements for a minimum of three years—and preferably, five years. This information should include all key elements such as revenue; cost of operation by department or operating unit; marketing costs; administrative and general expenses; repairs and maintenance costs; energy costs; and anything else specific and critical to calculating accurate financial projections.
- Be sure to calculate expenses levied against the operation as a whole, including major deductions from operating income like General and Administrative; Marketing; Energy; and overall Repairs and Maintenance costs. Within each of these operating categories, costs are included that are assessed against the business as a whole and not allocated downward to departmental operations.
- Finally, determine the net operating profit or loss for the business.
Helpful Questions for Getting Started for an Existing Business
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Where can you find the necessary documentation (monthly statements for the first year, quarterly analysis for the second and third year, and data to assist you in projections for the fourth and fifth years)?
- At what point did the business begin to turn a profit? If it is not yet profitable, when do you project it might turn a profit? Did this deviate from the typical third year “stabilized” scenario?
- What are the key terms you need to employ in your pro forma document?
- What is the specific segment mix of your business (tourism, business and corporate, and meetings and conventions)? What are the intrinsic or particular characteristics of the type of business or that you will need to address in your reporting and projections?
- Have you analyzed the historical operating results sufficiently?
- Does your business have customer demographics or seasonal variations as well?
- What is the current and projected market penetration? How does this relate to actual and anticipated competition?
- Define the components of your revenue stream. Do the same for expenses. Are there variations and variances you need to include?
- Have you calculated Departmental Operating Costs? Deductions from Income? General and Administrative Costs?
- What are your “Bases for Assumptions?” Do they correlate to each line item in your Financial Statement? Are they sufficiently detailed?
Helpful Questions for Getting Started for a Start-Up Business
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If you are projecting for a new business, to what existing businesses can you look for data? How can you ensure that your information sources are accurate and reliable?
- Where can you find the necessary documentation (monthly statements for the first year, quarterly analysis for the second and third year, and data to assist you in projections for the fourth and fifth years) for a competitor or comparable business in your industry?
- At what point is your business expected to begin to turn a profit? Use your comparative analysis to project for your own business. Does this deviate from the typical third year “stabilized” scenario?
- What are the key terms you need to employ in your pro forma document?
- What is the specific segment mix of your business (tourism, business and corporate, and meetings and conventions)? What are the intrinsic or particular characteristics of the type of business or that you will need to address in your reporting and projections?
- Have you analyzed the historical operating results of the comparable business sufficiently?
- What is the current and projected market penetration of the comparable business in your industry? How does this relate to your actual and anticipated competition?
- Project the components of your revenue stream. Do the same for expenses. Do you anticipate variations and variances you need to include?
- How would you calculate Departmental Operating Costs? Deductions from Income? General and Administrative Costs?
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