assignment 9 business finance

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Course info, instructors.

• William Aulet
• Howard Anderson
• Prof. Matt Marx

Departments

• Sloan School of Management

As Taught In

• Entrepreneurship

Learning Resource Types

New enterprises, assignment 9, assignment 9: financial section (version 1.0) and human resources section (version 1.0).

Financial section evaluation sheet (PDF)

HR section evaluation sheet (PDF)

Financial template (XLS)

Financial Section

The financial plan is the glue that holds the entire thing together. It is the basic evaluation of investment opportunity and needs to represent your best estimates of financial requirements. The purpose of the financial plan is to indicate the venture’s potential and present timetable for financial viability. It can also serve as an operating plan for financial management using financial benchmarks. This section unites the assumptions from all other sections in the plan (sales forecasts, gross margin assumptions, technology development, etc.).

Refer back to the Product section. How does your product development timeline relate that to your need for capital? What are you going to need money for and when? How will you generate / raise/ borrow this money? Start with a cash flow analysis, by quarter, taking into account all your major expenses—people, manufacturing costs, etc.—and then use a spreadsheet to determine what your quarterly burn rate will be. Show when your firm will reach cash flow break even. All great technologies must be effectively built, and then produced and serviced at a level such that the company can react to growth, as well as service requests that the industry demands.

Your financial analysis should include:

Financial Summary

Annual income statement and cash flow statements for years 1–3. Remember, cash flow is the most important and you must track it relentlessly in a startup. Make a special emphasis to show how you generate your top line revenue and what assumptions you are making in this. It merits its own chart and section because everything depends on top line growth and that is the first thing we will look at.

Pro Forma Income Statements

(monthly for year 1, quarterly for years 2–3, annually for subsequent years)

• Using sales forecasts and accompanying production or operations costs, prepare pro forma income statements for at least three years
• Start off with a detailed but concise explanation of your top line revenue and what is driving it. Explicitly state all assumptions in this (and all other) financial projection. Discuss sensitivities to your sales numbers. Give a worst, best and likely scenario for the sales projections.
• Fully discussed assumptions (e.g., the amount allowed for bad debts and discounts, were any assumptions made with respect to sales expenses, were general and administrative costs a fixed percentage of cost or sales) made in preparing the pro forma income statement and document them.
• But always remember that Income Statement does not equal Cash Flow and while it is important, Cash is king.

Pro Forma Cash Flow Analysis

• Project cash flows monthly for the first year of operation and quarterly for at least the next two years, detailing the amount and timing of expected cash inflows and outflows; determine the need for and timing of additional financing and indicate the requirements for working capital; and indicate how well-needed additional financing is to be obtained, such as through equity financing, bank loans, and short-term lines of credit from banks, on what terms and how is it to be repaid. Remember to use cash-based, not accrual-based, accounting.
• Discuss assumptions, such as those made on the timing of collection of receivables, trade discounts given, terms of payment to vendors, salary and wage increases, and anticipated increases in operating expenses, seasonality or cyclical business implications for inventory requirements, inventory turnovers per year, capital equipment purchases, and so forth. Again, these are real-time (i.e. cash), not accrual.
• Discuss cash flow sensitivity to a variety of assumptions about business factors (e.g. possible changes in such crucial assumptions as receivables collection or sales levels relative to forecasts).

Breakeven Chart

• Calculate breakeven and prepare a chart that shows when breakeven will be reached, and any stepwise changes in breakeven that may occur.
• Discuss the breakeven for your venture and whether it will be easy or difficult to obtain, including a discussion of the size of breakeven sales volume relative to objective total sales, the size of gross margins and price sensitivity, and how the breakeven point might be reduced in case the venture falls short of sales projections.

Which of the founders get how much of the pie? Talk about the investment sought, but do not allude to how much you are willing to give up. In real life, this is the part you negotiate with the VC (valuation).

Cost Control

Describe how you will obtain information about report costs and how often, who will be responsible for the control of various cost elements, and how you will take action on budget overruns.

Financial Conclusions

Highlight the important conclusions, such as what the maximum amount of cash required is and when it will be required. State how much money you will need and what the possible sources of it are and your current decision on where to get this needed capital from. Note how much you will need at each expected milestone and what exactly the money will be used for. If you get investment in equity or debt, state how and when you expect to return it to the investors and what their expected return will be, if it is equity.

Addendum: Capitalization Table

Compile a capitalization table indicating ownership percentages of the founders, VCs and option pool assuming you get the financing requested when you request it. Include important key hires specifically and then the general employee stock option pool as well. Show the valuation multiples for your company and changes in the value of ownership stakes on a year-by-year basis. Note: This would never appear in a real business plan, but it is a useful exercise to understand who benefits from value creation over time, and we ask you to include it for purposes of this exercise.

Human Resources Section

In tandem with the Financial Section, you will also have to do a Human Resources or Team Section. This will likely be a key driver of your financial plan as salaries are often the number one expense for startup companies. This section should cover the following points:

• Who is on the founding team? What are the roles for each? What qualifications do they have for these roles? How committed are they?
• Who are your advisors? How committed are they?
• What additional skills do you need to add to the team to be successful and when? Where do you intend to look to source them from? Make sure the hires are aligned with milestones in your overall plan and are consistent with your financial plan.
• Show how your organization will evolved over the next three years (organizational charts can be effective to convey this info)? What do you anticipate it will look like in 5 years?
• A discussion of the capital stock table here with regard to key employees and the employees in general is appropriate here as well.

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Course Resources

Assignments.

The assignments in this course are openly licensed, and are available as-is, or can be modified to suit your students’ needs. Answer keys are available to faculty who adopt Lumen Learning courses with paid support. This approach helps us protect the academic integrity of these materials by ensuring they are shared only with authorized and institution-affiliated faculty and staff.

If you import this course into your learning management system (Blackboard, Canvas, etc.), the assignments will automatically be loaded into the assignment tool.

You can view them below or throughout the course.

• Module 0: Personal Accounting— Assignment: Creating a Budget
• Module 1: The Role of Accounting in Business— Assignment: Lopez Consulting
• Module 2: Accounting Principles— Assignment: Accounting Principles
• Module 3: Recording Business Transactions— Assignment: Recording Business Transactions
• Module 4: Completing the Accounting Cycle— Assignment: Completing the Accounting Cycle
• Module 5: Accounting for Cash— Assignment: Accounting for Cash
• Module 6: Receivables and Revenue— Assignment: Manilow Aging Analysis
• Module 7: Merchandising Operations— Assignment: Merchandising Operations
• Module 8: Inventory Valuation Methods— Assignment: Inventory Valuation Methods
• Module 9: Property, Plant, and Equipment— Assignment: Property, Plant, and Equipment
• Module 10: Other Assets— Assignment: Other Current and Noncurrent Assets
• Module 11: Current Liabilities— Assignment: Calculating Payroll at Kipley Co
• Module 12: Non-Current Liabilities— Assignment: Non-Current Liabilities
• Module 13: Accounting for Corporations— Assignment: Collins Mfg Stockholders’ Equity
• Module 14: Statement of Cash Flows— Assignment: Kachina Sports Company Cash Flows
• Module 15: Financial Statement Analysis— Assignment: Coca Cola FSA

Discussions

The following discussion assignments will also be preloaded (into the discussion-board tool) in your learning management system if you import the course. They can be used as is, modified, or removed. You can view them below or throughout the course.

• Module 0: Personal Accounting— Discussion: Winning the Lottery
• Module 1: The Role of Accounting in Business— Discussion: The Crafty Coffee Crook
• Module 2: Accounting Principles— Discussion: SoftSheets
• Module 3: Recording Business Transactions— Discussion: Baker’s Breakfast Bars
• Module 4: Completing the Accounting Cycle— Discussion: Closing the Books in QuickBooks
• Module 5: Accounting for Cash— Discussion: Counter Culture Cafe
• Module 6: Receivables and Revenue— Discussion: Maximizing Revenue
• Module 7: Merchandising Operations— Discussion: Inventory Controls
• Module 8: Inventory Valuation Methods— Discussion: LIFO, FIFO, Specific Identification, and Weighted Average
• Module 9: Property, Plant, and Equipment— Discussion: Cooking the Books
• Module 10: Other Assets— Discussion: Other Assets
• Module 11: Current Liabilities— Discussion: Current Liabilities
• Module 12: Non-Current Liabilities— Discussion: Off-Balance Sheet Financing
• Module 13: Accounting for Corporations— Discussion: Home Depot
• Module 14: Statement of Cash Flows— Discussion: Facebook, Inc.
• Module 15: Financial Statement Analysis— Discussion: Financial Statement Analysis

Alternative Excel-Based Assignments

For Modules 3–15, additional excel-based assignments are available below.

Module 3: Recording Business Transactions

• Module 3 Excel Assignment A
• Module 3 Excel Assignment B

Module 4: The Accounting Cycle

• Module 4 Excel Assignment A
• Module 4 Excel Assignment B
• Module 4 Excel Assignment C
• Module 4 Excel Assignment D

Module 5: Accounting for Cash

• Module 5 Excel Assignment

Module 6: Receivables and Revenue

• Module 6 Excel Assignment A
• Module 6 Excel Assignment B

Module 7: Merchandising Operations

• Module 7 Excel Assignment

Module 8: Inventory Valuation Methods

• Module 8 Excel Assignment A
• Module 8 Excel Assignment B
• Module 8 Excel Assignment C

Module 9: Property, Plant, and Equipment

• Module 9 Excel Assignment A
• Module 9 Excel Assignment B

Module 10: Other Assets

• Module 10 Excel Assignment

Module 11: Current Liabilities

• Module 11 Excel Assignment

Module 12: Non-Current Liabilities

• Module 12 Excel Assignment A
• Module 12 Excel Assignment B

Module 13: Accounting for Corporations

• Module 13 Excel Assignment A
• Module 13 Excel Assignment B
• Module 13 Excel Assignment C

Module 14: Statement of Cash Flows

• Module 14 Excel Assignment A
• Module 14 Excel Assignment B

Module 15: Financial Statement Analysis

• Module 15 Excel Assignment

Review Problems

There are also three unit review assignments and a final review. These reviews include a document which sets up the problems and an excel worksheet.

Unit 1 Review Problem (After Module 6)

• Review Problem Document

Unit 2 Review Problem (After Module 8)

Unit 3 review problem (after module 9), final review (after module 15).

• Assignments. Authored by : Cindy Moore and Joe Cooke. Provided by : Lumen Learning. License : CC BY: Attribution

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In Moscow, a Financial District in Name Only

Moscow’s financial district, known as Moscow City, has become a visible symbol of Russia’s economic woes.

An office worker inside one of Moscow City’s skyscrapers. Russia, facing broad-ranging financial sanctions and largely dominated by state-run companies, simply has no need for vast office spaces for stock traders, auditors and bankers.

From 2000 to 2007, the Russian economy grew on average 7 percent a year. Most of the site’s construction occurred in the last decade. 

Workers during their lunch hour passed through an underground passage that links skyscrapers in Moscow City. Office space in the neighborhood currently averages $6.90 a square foot each month, almost a dollar below the city average.

One tower in Moscow City, called Evolution, twists in a DNA-evoking double helix. New buildings are also being repurposed at the development stage.

High Level Hostel, one of the newest tenants in the neighborhood, sits on prime real estate on the 43rd floor of a multimillion-dollar glass-and-steel tower.

Empire Tower, the skyscraper that is home to High Level hostel, is still largely empty two years after opening.

As Kremlin policies have dealt blows to the country’s financial sector jobs, Moscow City is now shifting tactics to fill the glut of premier office space.

Outside the City of Capitals building, with the twisting Evolution tower in the background. While nonfinancial ventures — from a culinary school to a 6,000-seat movie theater — rent more space in Moscow City, meshing the various constituencies is now creating new challenges.

By Andrew E. Kramer

• Nov. 25, 2014

MOSCOW — In the coveted corner office, a bearded man in sweatpants scrambled eggs at a kitchenette, all the while taking in the serene beauty of the city lights twinkling far below.

In the conference room, or as the company prefers to call it, the “common area,” two other men lounged about playing video games on an Xbox. In place of cubicles, there are bunk beds.

High Level Hostel, one of the newest tenants in the financial district here known as Moscow City, sits on prime real estate on the 43rd floor of a multimillion-dollar glass-and-steel tower. It is not a youth-hostel-themed work space, but an actual youth hostel — dirty socks and all.

“We thought, ‘why not open a hostel in a skyscraper?’ ” said Roman Drozdenko, the 25-year-old owner. “Nobody’s done that before.”

The tower, with its marble veneer foyer, banks of elevators and breathtaking views, was clearly built for lawyers, accountants or stock traders. But “there were no questions regarding our guests” from the building management when he opened in September, Mr. Drozdenko said. “In fact, there were no questions at all.”

Moscow’s skyscraper district, formally the Moscow International Business Center, reflects the broader problems in the Russian economy. The country, facing broad-ranging financial sanctions and largely dominated by state-run companies, simply has no need for vast office spaces for stock traders, auditors and bankers.

Vacancy rates in the newly built financial district have become acute. The entire site, some 148 acres that now includes the tallest building in Europe , Mercury City Tower, had a vacancy rate of 32 percent at the end of October, according to Cushman & Wakefield, the real estate consultancy. The rate is projected to rise above 50 percent next year when new buildings open.

“Russians have a great tradition of building things they don’t need,” Sergei Petrov, an office worker in Naberezhnaya tower, said of the emptiness behind the glass facades, a veritable Potemkin Wall Street.

Moscow City was envisioned as a hub of emerging market finance, a shiny skyscraper-dotted testament to Russia’s growing international influence. For a time, the idea was not improbable: From 2000 to 2007, the Russian economy grew on average 7 percent a year.

This herculean undertaking on a bank of the Moskva River was to be Moscow’s answer to Manhattan or the City of London.

One tower, called Evolution, twists in a DNA-evoking double helix. The spires of Federation Towers resemble billowing sails, evoking Russia sailing into a capitalist future. Federation Tower East, when finished, will rise 95 stories to a height of 1,224 feet, surpassing its still mostly empty neighbor Mercury City Tower as the tallest building in Europe.

Eight skyscrapers are finished, including the gold-tinted Mercury tower. Eight others are under construction, and two more are planned. The entire site is scheduled to be finished by 2018.

But Russia’s tanks are now getting more international attention than its banks, leaving Moscow City as a $12 billion reminder of the nation’s economic woes.

Western sanctions, for example, have taken aim at Russia’s largest state financial institutions, Sberbank and VTB, which both own towers or floor space in Moscow City. The two banks now have a limited ability to issue debt on global markets, thus limiting their growth options.

Sanctions by the United States and the European Union are expected to trim about 1 percentage point of growth from Russia’s gross domestic product this year, and slightly more next year if they remain in place. Even without sanctions, problems have been stacking up. Rising inflation, falling oil prices, and a tumbling ruble have left Russia near recession.

The government also accounts for an outsize proportion of the economy, leaving scant jobs for the grunt workers of private enterprise, the bankers, lawyers and traders for whom Moscow City was built. In Russia, 81 percent of the shares of the top 10 companies are owned by the same entity, the state, compared with 11 in Germany, according to a study by Organization for Economic Cooperation and Development economists.

Rather than turning to banks, Russia’s largest company, the sanctioned state oil company Rosneft is now appealing directly to state funds for loans. And the Kremlin this year again delayed shifting pensions into the private sector, dealing another blow to financial sector jobs.

“Somebody had the idea that if you build a lot of skyscrapers in one spot you have an international financial center,” Darrell Stanaford, a real estate analyst in Moscow with Romanov Dvor, said in an interview. “But it doesn’t work. You need other things, too.”

Moscow City, which has taken a direct hit from these policies, is now shifting tactics to fill the glut of premier office space.

City, the management company for the development in the neighborhood, says financial services companies are no longer the majority of its new tenants. Of the new Russian occupants signing leases this year, 58 percent were nonfinancial companies as well as local small and midsize businesses, like High Level Hostel, according to the management company.

New buildings are also being repurposed at the development stage. One low-rise will become a 6,000-seat movie theater.

In finished towers, various nonfinancial ventures are renting space. One company sells Cambodian citizenship to Russians wanting a second passport. A culinary school and restaurant are opening.

Many multinationals have rented space. IBM, General Electric, KPMG, General Motors, Hyundai, Energizer and Japan Tobacco International are all tenants, as is a major Russian investment bank, Renaissance Capital.

Prices, too, are falling. Mr. Drozdenko, the hostel owner, said a real estate agent offered him the space for about $8,000 a month for 1,600 square feet, or about $5 a square foot.

In Moscow City, office space currently averages $6.90 a square foot each month. That’s below the average of $7.75 for high-grade office space elsewhere in the capital, according to Denis T. Sokolov, senior analyst and a partner at Cushman & Wakefield in Moscow.

“We have to do this,” Dmitry Granov, the director of City management, said in an interview of the effort to broaden the range of tenants, because of the dearth of financial sector jobs in Russia.

“If before we were looking for international corporations, today we are looking for Russian companies, and small and medium businesses,” he said. He said dropping rents would attract technology start-ups.

City management company contested the vacancy estimate by Cushman & Wakefield. Cushman & Wakefield counts vacant sublease space in its total, while the management company does not. City says current vacancies are about 20 percent.

Meshing the various constituencies is also creating challenges.

“The cafes, amenities and dress code you need is different for clients of a youth hostel and for investment bankers,” said Mr. Stanaford, the real estate analyst, of settling tenants like High Level Hostel in their high-level location. “What image-conscious business is going to buy office space in the same skyscraper with a youth hostel?”

Empire Tower, the skyscraper where High Level hostel sits, is still largely empty two years after opening. In the foyer, an oval marble sculpture echoes the oval motif of the 60-story tower, designed for a more professional clientele.

Forty-three stories up, High Level Hostel opened in September with 24 beds, with prices starting at $25.50 in a six-person room, including a breakfast of toast, porridge or muesli. The hostel manager, Leonid L. Fedotov, 19, who goes by the nickname the Beard, recalled backpacking guests from Holland named Ron and Eve.

“It was really cool because Ron and I played guitar in the evening,” he said, as they gazed out at the twirling facade of Evolution Tower and the sea of lights of Moscow below.

The State of Real Estate

Whether you’re renting, buying or selling, here’s a look at real estate trends..

Courts allow co-op boards significant power over building finances, including assessments — if the fees are in “good faith.” Do you have to pay  what they say?

Agents in South Carolina, the fastest growing state in the country  last year, say that many newcomers are Republicans eager to leave the Northeast and West Coast.

When St. Francis College moved to its modern Brooklyn Heights campus in 1963, giving up an older South Brooklyn location, its yearbook heralded the new site with pomp and self-satisfaction. Here’s how eight feet jolted a $180 million  real estate deal.

David Saint, a theater director and a producer  of the 2021 film version of “West Side Story,” is selling his duplex with a wraparound terrace in the East Village.

A new version of the Pritzker Prize-winning architect’s Paper Log House  is on display at the Glass House in New Canaan, Conn.