Assignment on financial planning for
This assignment is being submitted on July 12, 2015
Introduction
As per the prevailing conventions in online gaming industry, the startups are often directed in the way, which their financial planning guides them to. Instead of aiming towards profit generation during initial 3-4 years, the objective behind running the business should be focused at marketing its core competencies and building the customer base (Arders, 2014). If the above two notions are maintained aptly, coupled with consequent rise in revenues and steady overhead costs, the profit attainment for the business can be ratified by the beginning of 4th year.
In our venture to set up an online streaming based gaming and multipoint interactive website, the financial planning for initial 4-5 years can give a clear implication over required strategy to manage resources, optimize costs, accentuate marketing activities, gain over clientele base and realize breakeven with subsequent profits (Kaplan, 2013). Hence the coming parts of the assignment will focus on various costs, income sources and projections for profit and investments over initial 5 years of the gaming website business (Ozsan, 2012).
Startup budget-Online gaming website
The key elements that need to be considered for the focused business budgeting can be primarily divided into:
User account, console, gaming interface and multiplayer platform integration costs (prime costs to enable the desired services).
Website designing and initial (ongoing) development
Marketing and promotional schemes (rampant during the initial phase)
Product R&D, Gaming products licensing, customization and inventory keeping
Sever rental and website hosting (web space leasing costs)
Maintenance costs – user accounts, server and website.
Other fixed expenses like those of legal, general office, employees and miscellaneous.
Key assumptions
The key assumptions in preparing the financial statements are based on an array of assumptions made for income statements and balance sheets (Seymore, 2013). The financial model will be planned from July 2015 to June 2016, as first year of operation and so on.
Income statement’s assumptions
The main aim for financial planning is to generate enough cash for reaching the break even close to the sixth year of operation, changing the industry patterns (The business plan, 2015). Hence the sales and marketing strategies will be channelized in this direction.
Key revenue generation from membership expenses of $ 12 per person with additional 10% for monthly subscription and account opening/maintenance per month. This is to remain constant for first 5 years. Strategic rise required in the membership fee will be covered by extraneous subscription charges (The business plan, 2015).
Extraneous subscription charges: Additional charges for online tutorial and info services subscription to be $1, when coupled with the gaming membership. This is to grow by $1 each year.
10% discount to renewal of membership charges for every referral. This discount will be adjusted in ‘other’ expenses.
First year target is have at least 10,000 memberships, assuming 10% of this to be from referrals. Projected 25% hike in number of members for each consequent year.
COGS- User account, console, gaming interface and multiplayer platform integration costs (may range from 55% to 60% of total revenues, depending on varying prices).
Primary website and user account maintaining expenses to be fixed to not exceed $ 30,000 for the first year.
Server rental and website hosting expenses to be fixed (and equally divided) at $10,000, followed by 30% rise for next five years ( 5 year contractual leasing).
Gaming product licensing, new product R&D and inventory costs to be minimum $10,000 for initial year. An annual hike of 25% will be budgeted for coming years.
Website designing and initial development expenses to be at basis cost of $ 10,000 for first year. An annual hike of 25% will be budgeted for coming years
Maintenance expenses to range from $ 5000 to $ 10,000, owing to project rise in memberships during the first 5 years.
Marketing/Selling expenses to be fixed at $8000 for the first 2 year (basis). Then 20% hike for next 3 years each.
All fixed costs like salaries and office expenses to be maximum 15% of the revenues.
Straight line depreciation assumed on capital expenditures at 5%.
Income tax figures are assumed to be average 20% of gross revenues.
II. Balance Sheet’s Assumptions
Initial paid in capital to be fixed at $25,000, for first 5 years.
Other equities in the business to be note more than $100,000 to $ 130,000 for the first five years. This range is affixed on the basis of fixed assets to be maintained for the initial few years of the commencement.
Current liabilities not to exceed 1% i.e. $250 for first year. Subjected to varying rise by 300% to 400% over the coming years, depending upon varying short term creditors for internet services.
Current assets to be derived from cash in hand (invested capital in startup case) + account receivables (short term liquefiable earnings from business partners) & marketable securities.
Marketable securities for the business will be on the basis of short term liquidation requirements from corporate bonds and will be ranged between $ 45,000 to 50,000.
Receivable figures are assumed to be close to those of the payables.
Fixed assets are added in the balance sheet as balancing factor for the overall asset side over capital expenditure justification.
Long and short terms investments are not included to avoid any ambiguities over asset to; liability match.
BREAK EVEN POINT ASSUMPTIONS
The breakeven point analysis is for the business by mapping the sales volume analysis for first 7 years of the business (The business plan, 2015). It can be deduced from the given pattern of volume sales to the overall costs that break even will be reached after completion of 6th year of business and prior to the 7th year.
CASH FLOW ANALYSIS ASSUMPTIONS
The main idea behind the cash flow analysis for first 2 years is to evaluate from the left over values between net cash flow generated from operations (evident in income statements) and the increase in capital expenditures (from the balance sheet). Hence the negative cash flows for the first 3 years shows how the business is generating losses and striving for attaining the break even point.
Appendix-1 INCOME STATEMENT (PROJECTED FOR FIRST 5 YEARS)
Appendix-2 BALANCE SHEET (5 year projection)
Appendix-3 BREAK EVEN ANALYSIS
Appendix-4 CASH FLOW FOR 3 YEARS
References
Aders, A (2014). How financial planning can save your Startup’s life. Retrieved from http://www.inc.com/aaron-aders/how-financial-planning-can-save-your-startup-s-life.html
Kaplan, M (2013). Five reasons for an e-commerce business plan. Practical e-commerce. Retrieved from http://www.practicalecommerce.com/articles/3979-5-Reasons-for-an-Ecommerce-Business-Plan .
Ozsan, F.M. (2012). Business Plan of an Entrepreneurial Project & Game Corner Reflection. Masters Project in Industrial economics and management. pp. 21- 23.
Seymour, L (2013). Financial planning for startups. Retrieved from http://www.marsdd.com/news-and-insights/financial-planning-for-startups/
The business plan store (2015). Sample business plan. Retrieved from http://www.thebusinessplanstore.com/sample_business_plan_financial_projections.htm
