Chapter 5: Financial Plan and Resource Generation

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Chapter 5 : Financial Plan and Resource

Generation

-Financial Plan Definition


-Objectives of Financial Planning
-Importance of Financial Planning
-Types of Investors
Learning Objectives:

• Demonstrate understanding of the Financial Plan


• Determine the Importance of Financial Planning
• Identify the Objectives of Financial Planning
Financial Plan Definition

• is a comprehensive overview of your financial goals and


steps you need to take to achieve them.
• gives a clear vision of the overall operating income and
expenses of the business to distinguish if the company
will gain profit and will be successful in the business
world.
Financial Planning
-is the process of estimating the capital required and
determining its competition.
-It is the process of framing financial policies in relation to
procurement,investment and administration of funds of an
Objectives of Financial Planning

Financial planning has got many objectives to look forward


to:
a.Determining capital requirements–This will depend upon factors
like cost ofcurrent and fixed assets; promotional expenses and long-
range planning. Capitalrequirements have to be looked with both
aspects: short-term and long-termrequirements.
b.Determining capital structure–The capital structure is the
composition ofcapital, i.e., the relative kind and proportion of capital
required in the business. Thisincludes decisions of debt-equity ratio,
both short-term and long-term.
Objectives of Financial Planning

c.Framing financial policieswith regards to cash control,


lending, borrowings, etc
d.A finance managerensures that the scarce financial
resources are maximallyutilized in the best possible
mannerat least cost in order to get maximum returnson
investment.
Importance of Financial Planning

Financial planning is process of framing objectives,


policies, procedures, programsand budgets regarding the
financial activities of a concern. This ensures effective
andadequate financial and investment policies.
The importance can be outlined as:
1.Adequate funds have to be ensured.
2.Financial planning helps in ensuring a reasonable balance
between outflow andinflow of funds so that stability is
maintained.
3.Financial planning ensures that the suppliers of funds are
easily investing incompanies which exercise financial
planning.
4.Financial planning helps in making growth and expansion
programs which helps inlong-run survival of the company.
5.Financial planning reduces uncertainties with regards to
changing market trendswhich can be faced easily through
enough funds.
6.Financial planning helps in reducing the uncertainties
which can be a hindrance togrowth of the company. This
helps in ensuring stability and profitability in concern
Importance of Financial Planning

The primary objective of doing business is to make money,


a technopreneur willprobably look for investors that could
provide them with capital investment to run or tostart the
business idea that they had generated during the idea
generation phase. Mostprospective investors are not
looking for an opportunity to support the financial plan of
aspecific person or groups. It is precisely advisable that
those prospective investors willrecognize that the
technopreneur have a passion for what they are doing.
Types of Investors
The six different investors types, ordered by expected time
of encounter from earliestto later fundraising stages,
include:
1.Angel investors-Angel investors are individuals willing to
make high-riskinvestments in early-stage ventures.
Typically, these individuals have hadsuccessful
entrepreneurial experience in the areas of investment they
consider.They usually are motivated by their desire to stay
engaged in their past area ofsuccess but are not willing to
follow the tough lifestyle they experienced duringtheir
entrepreneurial days.
Types of Investors

2.Public funding agencies-Public funding agencies with


the mandate and authorityto fund business ventures to
achieve economic development, environmental,cultural, or
social policy objectives formulated by policy makers at
various levelsof government are good sources of funding,
particularly at the early stage.
3.Venture capital companies-These are specifically
established to invest in high-risk ventures that offer
potentially high returns. VCists (VCs) raise funds
tocapitalize investment funds that they manage.
Types of Investors

4.Private equity (PE) firms-These are specifically


established to invest inrelatively mature ventures that have
at least a modest financial or operational trackrecord while
still offering relatively attractive terms in an intermediate
time frame(i.e., one to five years).
5.Strategic investors-They are defined by their investment
intentions more than any other factors. They could be a
member of any of the previous types of investorswe have
discussed; however, more often they are larger companies
operating orinvesting in the same industry or a
Types of Investors

complementary one or market as your venture.Very often


they are not in the business of investing in smaller ventures
but maybelieve an investment in your business would offer
them some strategic value.
6.Banks-If you have reached a position to deal with banks,
you have reachedfinancial nirvana, as banks offer the
lowest costs of capital. A famous saying goes,"A bank will
only lend you money when you do not need it."
Startup Fundraising
Aside from the six types of investors, the startup community
contemplated thefollowing options to raise a capital for your
startup business based on Sarath, CP, a digital strategist
and growth hacking specialist worked for both startups and
big brands and helpedthem to build a strong brand
presence and achieve growth:
1.Funding your own idea
This way of raising funds is the most common among
startup's early stages.Founders or the team members put
their money together startup. Professionalinvestors in the
market prefer this way of raising funds.
Startup Fundraising

You must have some savings or assets that would be used


for the businessstartup. Funding your own startup is one
way of telling your potential investors howserious you are
about this venture. Putting your money in the project shows
thatyou are willingly taking the risk of putting the money that
you have worked hardfor at stake, supporting your idea with
the faith you have in your company.
Startup Fundraising
2.Crowdfunding
There are various types of crowdfunding. You have to select
which one isthe best for your business such as rewards or
equity-based crowdfunding. It is anexcellent way to gather
funds for startups with artistic projects or even to
raisecapital to finance the manufacturing of new technology
at a large scale.Any option you choose this option is of low
risk as if you want to put theproduct in the market and also
get funds to finance your product and make it thereality.
This is also advantageous to get feedback from the early
adopters of yourprototypes
Startup Fundraising

3.Friends and Family


One of the best places t o raise funds is from your own house. As
yourfamily is well aware of your talents, they will be willing to
support you regardlessof what you want to do. Family and friends
are the only ones who know yourpotential and will be willing to give
money to start your business.This may seem like a great way of
gaining investment partners, buteverything has its drawbacks.
Acquiring loans or investments from family or friends may be
advantageous to some businesses as they have faith in your
talentsand your success. But for others that require assistance or
guidelines, angelinvestors are best way as your family might not
have those experiences which areneeded.
Startup Fundraising
4.Taking A Loan
Another way to get your startup financed is a business loan
from a bank. Itis one way of keeping the initial control of the
business in your own hand. Takinga loan for startups might
be healthy but only to those who have full confidence
thatthe business will prosper in the first run without
difficulties. Again, it depends onyou and the type of
business you want to incorporate.But while considering the
loan, check the interest rates and also if you havecollateral
to give. Crosscheck with all the facts, whether you are able
to complywith all the terms of the loan.
Startup Fundraising
5.Enter Competitions
For gaining publicity, you can enter competitions if you
believe that youridea is capable enough. Entering theses
contests will be vey helpful to you as, inone hand if you win
the competition you will get asource of finance, and on
theother hand, you gain publicity for your product and
people will be waiting for it tohit the market (it acts as
advertisements).This is a low-risk option as you get your
ideas out in front of investors andif it is good, you can win
the competition and get the money rewards to finance
thestartup of your business to succeed.
If you are not able to make it and win the cashprize, being
on that competition acts as an advert for you and angel
investors maycontact you to invest in your idea. Both
waysit'sa win for you

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