Financial plan - Essay Example

Financial Plan Table of Contents Overview 4 Anticipated Sales for the Product in Terms of Units and Values 5 Sales 5 Costs Involved 5 Income 6 Break-Even Analysis 7 Estimated Profit and Loss for Year 1, 2 and 3 9 References 10 Bibliography 11 Overview This paper would present a financial plan of a chocolate company that has been formed as a result of a spinoff from Unilever. Unilever had streamlined its business operations by selling off and divesting its chocolate business as a commercially viable spinoff.

The name of this company formed as a result of such a spinoff is ABC Chocolate Ltd.; it is anticipated to be more valuable as an individual business than as a constituent of Unilever. Anticipated Sales for the Product in Terms of Units and Values Unilever’s operations can be grouped into four main categories, namely, personal care, home care, foods and refreshment (Unilever, 2011). Chocolate is clubbed within the ‘Refreshment’ category. From the annual report of Unilever, it can be observed that ‘Refreshment’ category accounted for around 19% of the total turnover of the company in 2011(8804 million Euro) and approximately 11% of the company’s operating profit.

For gaining a better idea of the anticipated sales value of chocolates, we would also take in consideration the chocolate sales of Kraft Foods, one of the major chocolate manufacturers. Chocolate accounted for 17% of Kraft’s total revenue in 2010, i.e. chocolate had generated $8365.19 million (Mondelez International, 2010). Sales Considering the estimates of Unilever and Kraft Foods, the value of sales expected from ABC Chocolate Ltd in the first year of its operation would be £9000, 000.

It has been expected that the company would be able to sell around 3 million units of chocolate in a year. Costs Involved The expenses involved would be in the form of variable cost as well as the fixed cost to manufacture and distribute the chocolates. The cost of raw materials is expected to cost £25.60 per box, so if suppose 3410 55 kg containers are to be distributed, we should expect total annual raw material cost to be £45,801,280.00 (i.e. £25.60 X 3410 X 55). The annual distribution cost has been assumed to be worth £500,000.

00 or £41,666 per monthly dispatch. Therefore the total annual sales costs should be £4,801,280 + £500,000= $5,301,280. Since the company is expected to sell 3,000,000 units of chocolates, the variable cost per bottle will be around £1.77. The fixed costs involved include the marketing cost (£350,000 per year), tariffs and taxes (£77,990.71) and insurance costs (£173,032.75). Thus the total annual fixed cost would be £601,023. Therefore the total annual expenditure expected by the business is £5,902,303.

Income If the selling price per unit of chocolate is assumed to be £3, then considering the annual sales volume to be 3 million units, the revenue is expected to be £9,000,000. Since, the total annual cost expected is £5,902,303; the anticipated income would be £3,097,697. The computations are shown in the following figure: Sales       Selling Price per unit of chocolate £3   Units Sold per year 3,000,000   Revenue £9,000,000       Variable Costs       Total annual raw material cost £4,801,280   Total Annual distribution cost £500,000   Total Variable Cost £5,301,280   Variable cost per unit £1.

77         Gross Profit £3,698,720 Fixed Cost       Total Marketing costs £350,000   Total Tariffs & Taxes £77,990.71   Total Product & Insurance £173,032.75   Total Fixed Costs £601,023   Fixed cost per unit £0.20         Total Cost £5,902,303   Cost per unit £1.97       Net Profit   £3,097,697 Break-Even Analysis The break even analysis of business would be conducted for a time frame of one year. As already discussed in the Sales forecast, the estimated average sales price of a unit of chocolate is £3.

For the analysis, the fixed expenses associated with production of the chocolates are expected to be £601,023 which implies that the £0.2 per unit of product. Additionally the variable expenses such as the price of raw materials and distribution charges are estimated to be £1.77 per unit. It is expected that the business would sell on an average around 3 million units of chocolates during the period of one year. By considering all these values into the formulas, we can conduct a breakeven examination.

The yearly expected revenue of the business is 3000,000 x £3 = £9000, 000. Thus, the total variable expenses would be 3000,000 x £1.77 =£5,301,280 Likewise, the fixed expenses over the period of one year would be, £601,023, which is actually £0.20 per unit. Consequently, the total expenditure of the company for the one year time period would be, £5,301,280+£601,023=£5,902,303 The estimated revenue of ABC Chocolate Ltd. over one year is £9000, 000. As a result, the Profit or Loss for the year would be, = £9000, 000 –£5,902,303=£3,097,697.

The company can attain its breakeven sales point, when its revenue is exactly equal to its costs. In other words, it signifies how many units of product the organization will have to sell in order to make up for its involved expenses. Thus, the breakeven point of the business is when the net profit of the company is zero. This position can be computed by varying either the selling price of the product or the number of units expected to be sold. By varying the sales volume or the number of units sold per year, we find that the net profit of the company is zero when the company sells 1,967,434 units of chocolates.

Estimated Profit and Loss for Year 1, 2 and 3 We would assume that the company would sell 3million, 3.5 million and 4 million units of chocolate in its first three years of operation respectively. We would also assume that the fixed cost would remain constant and while the variable cost varies. The pro forma statements of the company based on these assumptions are as follows: Income Statement Year1 Year 2 Year 3 (All values in £) Net revenues 9000,000 10500,000 12000,000 Variable Cost 5,301280 6,184,826 7,068,373 Fixed Cost: Marketing Costs 350,000 350,000 350,000 Tariff & Taxes 77,990.

71 77,990.71 77,990.71 Insurance 173,032.75 173,032.75 173,032.75 Net Profit 3097,697 3714,150 4,330,603 References Unilever, 2011. Annual Report and Accounts 2011. [Pdf] Available at: http://www.unilever.com/images/Unilever_AR11_tcm13-282960.pdf [Accessed on November 8, 2012]. Mondelez International, 2010. Kraft Foods Inc (KFT) [Pdf] Available at: http://www.mondelezinternational.com/SiteCollectionDocuments/pdf/KraftFoods_10K_20110228.

pdf [Accessed on November 8, 2012]. Bibliography Gillespie, K., et al. 2010. Global Marketing. USA: Cengage Learning. The World Bank, 2012. Economy Profile: United Kingdom. [Pdf] Available at: http://www.doingbusiness.org/~/media/giawb/doing%20business/documents/profiles/country/GBR.pdf [Accessed on November 8, 2012].