Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Finance 1.Financial Planning 2.Financial Analysis 3.Principles of Investments 4.Cash Management& Control 5.Financial Forecasting a.Cost projections  Start-up costs  Monthly expenses  Working Capital  Variable cost  Sales projection b. Breakeven point c. Pro Forma financial statements  Income Statement  Balance Sheet  Cash Flows d. Ratio Analysis  ROI  ROE  Net Working Capital  Other Ratios e. Capital Requirements 6. Financial Risk Management

Cost projections It’s an activity that it should be carried out during the project initiation to recognize costs and expenses for development, implementation and maintenance of the project. Cost projections provide details and total funds needed for the implementation of a project. Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

1.Start-up costs expenses incurred before the business is running there is no universal method for estimating your startup costs Some of these expenses will be one-time costs such as the fee for incorporating your business Some will be ongoing costs, such as the cost of utilities, inventory, insurance, Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Start-up costs  Office, building, store,……..  Equipment, machine………..  Vehicles……….  Furniture……  Rent, insurance (estimation of one year)  Preliminary expenses such as: inventories, salaries, other expenses Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Start-up costs Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Preparing Start-up costs based on  SMEs  Khalifa Fund for Enterprise Development Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Preparing Start-up costs based on  SMEs Approximate Costs Office/ Building/ Workshop Dhs Legal Registration Fees Dhs Equipment/ Machinery/ Vehicles Dhs Staff Dhs Materials Dhs Pre-Operations Cost Dhs Total Cost (add all of the above) Dhs Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Preparing Start-up costs based on  Khalifa Fund for Enterprise Development Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Application: Using Excel Sheet to prepare the Start-up costs Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Monthly Expenses It’s the expected business expenditure of any types of business on monthly bases with disregard of sales. It’s very important to have enough cash to pay the monthly expenses. The monthly expenses will be considered as the fixed costs of the business and must be adjusted when it’s needed It’s very important to track the monthly expenses of the business to calculate the breakeven point Tracking the monthly expenses will give the entrepreneur the ability to estimate the net income of the business on the daily, monthly and annually basis. Monthly expenses such as monthly salaries, utilities, insurance, rent, advertising, depreciation of the fixed assets or vehicles…etc Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Monthly Expenses with Disregard of Sales Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Application: Using Excel Sheet to prepare the Monthly expenses Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Working Capital Working capital is one of the measures of a company's liquidity (available cash), efficiency, and overall performance of the business. We usually prepare Net Working Capital after we finish preparing the balance sheet statement Net Working capital = Current Assets – Current liabilities Positive working capital generally indicates that a company is able to pay off its short-term liabilities. Negative working capital generally indicates a company is unable to meet its short term obligations, such as operation or administration expenses. Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Working Capital Working capital includes: Inventory: Retail Inventory: refers to the goods and materials that a business holds for the ultimate purpose of resale Factory Inventory: is the raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Service business Inventory or supplies: consumable items which commonly have a shorter life span in use Salaries: Payment for employees will be calculated on monthly, quarterly, semi and annually Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Working Capital Working capital includes: Administrative Expenses: costs incurred by a small business on a more general basis and not associated with a specific department. Examples salaries and benefits for secretaries and receptionists, office supplies, telephone bills etc. Operational Expenses: costs incurred by a small business to produce a product or services for customers. Operation expenses for a retail business or a factory would be “cost of goods sold. For service businesses, it could be copy machines, paper, ink and maintenance costs, or any costs not included in the administrative costs. Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Working Capital Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Application: Using Excel Sheet to prepare the Working Capital Statement Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Variable Costs Is a cost that varies in step with the sales or output of a company. In factories and retail businesses, the variable costs is the cost of goods sold and in the service businesses, it’s very small percentage and it includes the operation costs. Variable costs differ from fixed costs (monthly expenses) such as rent, advertising, insurance and office supplies, utilities, which tend to remain the same regardless of production output. In some occasions, we have to use utility bills as variable costs if the utilities are crucial part of the production process. Variable costs + Fixed costs = Total costs of the business Sales – Total costs = Gross Income or contribution margin Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Variable Costs vs. Fixed Costs Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Variable Costs Variable cost is a percentage of sales and it’s different from one business to another: Restaurants: variable costs is less than 35% of selling price Supermarkets: variable costs may exceed 70% of retailing Furniture Factory: may be around 50% Haircut Salon: the variable costs could include the commission, supplies and may be utilities Discuss with us your type of business Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Application: Using Excel Sheet to prepare the Variable costs Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Sales Projection I s the amount of sale or revenue a company expects to earn in the future. It can be calculated on a monthly, quarterly or annual basis. Lenders often base their loan decisions on the time frame in which a business turns a profits Established businesses may need to show growth potential and explain how they derived the numbers Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Sales Projection Khalifa Fund and SMEs recommended sales forecasts or projections as part of the loan application process. small companies should run sales projections for all their products or services for a broader assessment That way they can determine which product lines are hurting the business It’s important to prepare sales projection in three economic conditions ( Best, normal and weak). Basic sales forecast is one of the hardest pieces of business planning for most people to deal with Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Sales Projection in SMEs & Khalifa Fund: 9. Sales and Profits What are the proposed annual sales? Dhs How much will your expected profits be? How do you expect to use the profits that your company generates? 5.2Sales Forecasting & Planning (Determine the planned sales forecast for the first five years of operation) Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen DescriptionY1Y2Y3Y4Y5 Total unit of service/product produced Unit rate (AED/unit or service) Total sales (AED)

Application: Using Excel Sheet to prepare the Sales forecasting Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Break-even point (BEP) It’s is the point at which total cost and total revenue are equal: there is no net loss or profit. BEP represents the sales amount—in either unit (business with units) or revenue terms (Retail businesses such as supermarkets, restaurants— that is required to cover total costs (both fixed and variable). It’s very important to know your break-even point of your business to track costs associated with sales. Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Break-even point (BEP) Formula BEP = Fixed Cost / (Unit Price - Variable Unit Cost) Or Sales(100%) – (variable cost portion %?) = contribution Margin BEP = Fixed costs/ contribution margin ratio Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Break-even point (BEP) Formula Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Application: Using Excel Sheet to prepare the Break-even point Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

References Dubai SMEs (Guideline: Business Concept Preparation) Khalifa Fund (Format for Business Plan) US Small Business Administration Entrepreneurs website Starting your business website Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen