Production Capacity Planning in Financial Projections

A manufacturing business needs to review its draft financial projections to ensure that they include sufficient capital investment to provide the production capacity needed to meet the sales demand forecast and the required inventory levels.

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General and Administrative Cost Model

General & administrative costs are a necessary part of operating a business. Expenses associated with general and administration such customer acquisition costs and the costs to service customers throughout the customer life-cycle, need to be included in the income statement of the financial projections template, and this model allows those cost to be estimated in detail and summarized.

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Sales and Marketing Cost Model

Sales & marketing costs are a necessary part of operating a business. Expenses associated with sales and marketing such customer acquisition costs and the costs to service customers throughout the customer life-cycle, need to be included in the income statement of the financial projections template, and this model allows those cost to be estimated in detail and summarized.

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Research and Development Cost Model

R&D costs are a necessary part of developing new products for a business. Expenses associated with R&D such as staff costs, need to be included in the income statement of the financial projections template, and this model allows those cost to be estimated in detail and summarized.

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Estimate New Capital

New equity capital is included in the cash flow statement of the projection as a positive figure as it represents cash flowing into the business from investors. For example, if in year two the plan inject new capital of 5,000 to finance the purchase of new machinery, the figure of 5,000 should be included in the cash flow statement on the proceeds from the issue of new share capital line.

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Cash Flow vs Profit

A business needs to understand that there is a difference between profit and cash. Eventually a business needs to be able to make a profit, however, providing it is properly financed and has adequate cash flow a business can survive for a considerable period of time without profits.

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Cash Conversion Cycle

All businesses have a cash conversion cycle, it is the time in days between paying for inventory and receiving the cash from the sale of that inventory from customers. The cash conversion cycle formula can be used to calculate the number of days.

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