CHAPTER 5

Financial Plan and Resource Generation

Learning Objectives:

• At the end of this lesson, the students are expected to:

• Demonstrate understanding of the Financial Plan;
• Determine the importance of Financial Planning; and,
• Identify the objectives of Financial Planning.

If you are planning to put up a business, one of the important things to consider is the financial plan as it is
where the budgets and expenses will rely on. A business without the capital or money to be invested cannot operate
immediately due to financial constraints.

The financial planning is a difficult task to accomplish because the company needs to have an investor or
someone that could give a capital investment for the new business.

Financial Plan Definition

A financial plan is a comprehensive overview of your financial goals and the steps you need to take to achieve them.
Since everyone's financial situation is unique, every financial plan will look a bit different. However, almost all plans will
include your financial and life goals, an analysis of the current state of your finances, projections of your future wealth
and a road map to how you'll achieve the goals you've set.

A financial plan 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 enterprise.

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 of current and fixed assets,
promotional expenses and long- range planning. Capital requirements have to be looked with both aspects:
short-term and long-term requirements.

b. Determining capital structure - The capital structure is the composition of capital, i.e., the relative kind and
proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and
long- term.

c. Framing financial policies with regards to cash control, lending, borrowings, etc.

d. A finance manager ensures that the scarce financial resources are maximally utilized in the best possible
manner at least cost in order to get maximum returns on investment.
Importance of Financial Planning

Financial Planning is process of framing objectives, policies, procedures, programs and budgets regarding the financial
activities of a concern. This ensures effective and adequate 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 and inflow of funds so that stability is
maintained.
3. Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial
planning.
4. Financial Planning helps in making growth and expansion programs which helps in long-run survival of the
company.
5. Financial Planning reduces uncertainties with regards to changing market trends which can be faced easily
through enough funds.
6. Financial Planning helps in reducing the uncertainties which can be a hindrance to growth of the company. This
helps in ensuring stability and profitability in concern.

The primary objective of doing business is to make money, a technopreneur will probably look for investors that
could provide them with capital investment to run or to start the business idea that they had generated during the Idea
generation phase. Most prospective investors are not looking for an opportunity to support the financial plan of a
specific person or groups. It is precisely advisable that those prospective investors will recognize that the technopreneur
have a passion for what they are doing.

Types of Investors
The six different investor types, ordered by expected time of encounter from earliest to later fundraising stages, include:

1. Angel investors - Angel investors are individuals willing to make high-risk investments in early-stage ventures.
Typically, these individuals have had successful entrepreneurial experience in the areas of investment they
consider. They usually are motivated by their desire to stay engaged in their past area of success but are not
willing to follow the tough lifestyle they experienced during their entrepreneurial days.
2. Public funding agencies-Public funding agencies with the mandate and authority to fund business ventures to
achieve economic development, environmental, cultural, or social policy objectives formulated by policy makers
at various levels of government are good sources of funding, particularly at the early stages.
3. Venture capital companies - Venture, capital firms are specifically established to invest in high-risk ventures that
offer potentially high returns. VCists (VCs) raise funds to capitalize investment funds that they manage. Their
investors entrust them to identify investment opportunities matching specific criteria and expectations, which
govern the fund managers' investment decisions.
4. Private equity (PE) firms - Private equity (PE) firms are specifically established to invest in relatively mature
ventures that have at least a modest financial or operational track record while still offering relatively attractive
terms in an intermediate time frame (i.e., one to five years).
5. Strategic investors - Strategic investors are defined by their investment intentions more than any other factors.
They could be a member of any of the previous types of investors we have discussed; however, more often they
are larger companies operating or investing in the same industry or a complementary one or market as your
venture. Very often they are not in the business of investing in smaller ventures but may believe 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 reached financial 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."
 Aside from the six types of investors, the startup community contemplated the following options to raise a
capital for your startup business based on Sarath, CP, a digital strategist and growth hacking specialist worked for both
startups & big brands and helped them 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 for their startup. Professional investors in the market prefer this way of raising funds.

You must have some savings or assets that would be used for the business startup. Funding your own startup
is one way of telling your potential investors, how serious you are about this venture. Putting your money in the
project shows that you are willingly taking the risk of putting the money that you have worked hard for at stake,
supporting your idea with the faith you have in your company.

2. Crowdfunding:

There are various types of crowdfunding. You have to select which one is the best for your business such as
rewards or equity-based crowdfunding. It is an excellent way to gather funds for startups with artistic projects or
even to raise capital 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 the product in the market and also get
funds to finance your product and make it the reality. This is also advantageous to get feedback from the early
adopters of your prototypes.

3. Friends and Family:

One of the best places to raise funds is from your own house. As your family is well aware of your talents,
they will be willing to support you regardless of what you want to do. Family and friends are the only ones who know
your potential and will be willing to give you money to start your business.

This may seem like a great way of gaining investment partners, but everything has its drawbacks. Acquiring
loans or investment form family or friends may be advantageous to some businesses as they have faith in your
talents and your success. But for others that require expert assistance or guidelines, angel investors are the best way
as your family might not have those experiences which are needed.

4. Taking A Loan:

Another way to get your startup financed is a business loan from the bank. It is one way of keeping the initial
control of the business in your own hand. Taking a loan for startups might be healthy but only to those who have full
confidence that the business will prosper in the first run without difficulties. Again, it depends on you and the type of
business you want to incorporate.

But while considering the loan check the interest rates and also if u have collateral to give. Crosscheck with
all the facts, whether you are able to comply with all the terms of the loan.

5. Enter Competitions:

For gaining publicity, you can enter competitions if you believe that your idea is capable enough. Entering
these contests will be very helpful to you as in one hand if you win the competition you will get a source of finance,
and on the other hand, you gain publicity for your product and people will be waiting for it to hit the market (it acts
as advertisements).

This is a low-risk option as you get your ideas out in front of investors and if it is good, you can win the
competition and get money rewards to finance the startup of your business to succeed. If you are not able to make it
and win the cash prize, being on that competition acts as an advert for you and angel investors may contact you to
invest in your idea. Both ways it's a win for you.
CHAPTER 5

Exercises and Activity

Name: ___________________________________ Year & Section: ___________________

Instructor's Name: __________________________ Rating __________________________

I. Identification: Write your answer on the space provided.

1. _______________It is a comprehensive overview of your financial goals and the steps you need to take to
achieve them.
2. _______________It is process of framing objectives, policies, procedures, programs and budgets regarding
the financial activities of a concern.
3. _______________They are individuals willing to make high-risk investments in early-stage ventures.
4. _______________A type of investor that are specifically established to invest in high-risk ventures that offer
potentially high returns.
5. _______________A type of investor where firms are specifically established to invest in relatively mature
ventures that have at least a modest financial or operational track record while still offering relatively
attractive terms in an intermediate time frame.
6. _______________It is an excellent way to gather funds for startups with artistic tic projects or even to raise
capital to finance the manufacturing of new technology at a large scale.
7. _______________It is one way of keeping the initial control of the business in your own hand.
8. _______________This is a low-risk option as you get your ideas out in front of investors and if it is good
9. _______________They are the only ones who know your potential and will be willing to give you money to
start your business.
10. _______________Professional investors in the market prefer this way of raising funds.

II. Differentiate the following types of investors.

1. Angel Investors vs Crowdfunding

2. Public Funding Agencies vs. Family and Friends

3. Strategic Investors vs. Competitions.

4. Banks vs. Loan

5. Private Equity Firms vs. Funding your own