Non-Profit Religious Music Promotion Business Plan

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Sources of Financing

Business financing has become a challenge for those aspiring to expand an existing business or start a business. Thus, this reflective treatise attempts to explicitly review the sources of funding options available for the nonprofit Texas Religious Music Promotion Company. Besides, the treatise explores cost aspects of each source of business financing and the importance of financial planning.

Internal Sources

The internal financing options available for the company include personal sources such as retained profits and share capital. Basically, the retained profit is the funds generated by the initial business when it profitably trades. Considering the duration that the company has taken, the shared profits will substantially contribute to the funding for the Texas Religious Music Promotion Company.

Reflectively, retained profits is necessary is financing further expansion of the company since the business has the potential of making consistent sales. Besides, the company has the option of acquiring funding from the share capital which has been the main source of funding for the start up (Vance, 2003). Through share capital, the owner will be in a position to retain full control and ownership of the company, especially if he or she is the sole contributor.

External Funding Sources

Among the most viable external funding sources available for the Texas Religious Music Promotion Company include loan capital in the form of bank overdraft or bank loan, engaging external investors and convincing business angels to be part of the company.

Bank loan/Overdraft

Under a bank loan option, the company will be in a position to receive funding that is fixed over a period of time. The loan(s) will attract different interest rates, depending on the type and amount that the business will borrow. Reflectively, bank loans are repaid over a longer period of time and repayment schedules is fixed. Besides the bank loan, the company has the option of acquiring financing through bank overdraft. Basically, bank overdraft is a short term loan.

Bank overdrafts are a very flexible source of business financing since they can be used to handle temporary cash flow fluctuations in the company (Haber, 2004). Besides, bank overdrafts may offer the company a lifeline when it experiences temporary cash flow challenges.

Share Capital from Outside Investors

Another source of financing available for the company is the use of funds from outside investors such as contributions from family, friends, and interested investors who will be given shares in the company according to their contribution (Atrill, 2009). The fund contributors will be allocated shares in line with the total capital that the company requires for the expansion of the business.

Payback Period

Payback period is the duration required by the business to fully recover the costs of its start up. A business manager may use discounted payback period so as to take care of time value of money. The decision criterion is to accept a business with a shorter payback period (Sirman, Hitt & Ireland, 2003). This approach is useful because it tells the duration which a business ties capital. Payback period is obtained through a division of the initial investment cost by the annual cash flows.

Initial investment outlay $491,000

Annual cash flow $90,000

Therefore, the payback period is 491,000/90,000 = 5.4 years at a flat interest rate.

Cash Flow Projections

Cash flow projections are critical in estimating the net present value of the business against future projections. This is indicated in the table below.

Total revenue (P * Q) = total cost [Variable (C *Q) + fixed cost]

Price per unit (P) = $112.5

Units produced (Q) = to be estimated

Total fixed cost = $34,000 (as shown in the table below)

Item	Annual costs (000 $)
Fixed costs
Salaries and wages	21,000
Advertising	10,000
Administration	3,000
Total fixed costs	34,000

Net present value for the business


Year	Cost ($)	Benefits ($)	Net benefits ($)	Discount rate at 12% ($)	Net present value ($)
0	120,000	0	(120,000)	1	-120,000
1	25,000	80,000	55,000	0.8929	49,109.5
2	25,000	80,000	55,000	0.7972	43,846
3	25,000	80,000	55,000	0.7118	39,149
Total	195,000	240,000	45,000		12,104.5

The table below shows the marginal cost statement at the break-even units of output.

Financial Projections

Before deducting expenses

Texas Religious Music Promotion Company. Balance sheet statement As at 31 December 2014

	Amount ($)
Current assets	256,000
Long term assets	235,000
Total assets	491,000
Total current liabilities	180,000
Stockholders’ equity
Additional paid up capital	160,000
Retained earnings	151,000
Total stockholders’ equity	310,000
Total liabilities and stockholders’ equity	491,000

Texas Religious Music Promotion Company. Income statement. As at 31 December 2014

	Amount ($)
Net sales	353,717
Cost of sales	239,083
Gross profit	114,634
Net profit	114,634

After deducting expenses

Texas Religious Music Promotion Company. Balance sheet statement. As at 31 December 2014

	Amount ($)
Current assets	265,416
Long term assets	235,000
Total assets	500,416
Total current liabilities	170,000
Stockholders’ equity
Ordinary common stock	1,000
Additional paid up capital	160,000
Retained earnings	150,000
Total stockholders’ equity	330,416
Total liabilities and stockholders’ equity	500,416

Texas Religious Music Promotion Company. Income statement. As at 31 December 2014

	Amount ($)
Net sales	353,717
Cost of sales	239,083
Gross profit	114,634
Sales marketing	45,924
General administrative	38,464
Amortization	1,046
Other expenses	34
Total expenses	85,468
Income before taxes	29,166
Taxes	8,750
Net profit	20,416

Texas Religious Music Promotion Company. Statement of changes in equity. As at 31 December 2014

	Common stock	Additional paid in capital	Retained earnings	Other comprehensive income	Treasury stock	Total stockholder’s equity
Opening balance	1,000	160,000	150,000	0	0	310,000
Changes			20,416			20,416
Closing balance	1,000	160,000	170,416	0	0	330,416

Return on investment = Gains – Investment costs

Investment costs

List of possible risks

Risk parameter quantifies the difference between the expected and actual results of a business policy over a specified period of time. Generally, risk is regarded as a negative factor because of its associated downside exposure to unrealized benefits, technical; performance shortfalls, time slippage, and cost overruns.

Operational risks

Operational risk is regarded as the main risk in this line of business. Operational risks involve risks associated with processes, people, technological elements, and content of the business. Lost competitive advantage, lost opportunities to deliver services at low cost, and challenges faced while training employees are possible risks costs that will be experienced while delivering services to clients. Thus, understanding these risks will ensure proactive mitigation strategies in the short and long term.

Financial risks

Risk stemming from unrealistic expectations, unreasonable schedule and budget necessitate a time and cost planning approach to the management, thus determining a baseline and striking a balance between time cost and scope or quality through business integration management.

The financial risks can be countered through the use of technical countermeasures and proper management, awareness creation, as well as by subsidizing related charges. Identifying potential risks and adopting appropriate actions is an essential challenge facing this company. This summarized in the table below.

Risk	Impact	Probability
Economic and Financial Risk	High Operation of this business is very expensive due to high expectations	Low Since the company is reliable, there is an assumption that the company will benefits from economies of scale to reduce the cost of doing business
Operational and Technological Risk	High The overruns on cost is likely to create a ripple effect in the company implementation categories such as hiring suitable personnel, marketing, and competition	Medium Since the company is tightly controlled, the probability will not be high since the company has a strong establishment in the market besides planning to adopt the penetration strategy to enter and control the market

Conclusion

Through financial planning, the company may be in a position to correctly forecast the profits and manage assets and costs associated with running the business. In addition, financial planning facilitates pricing and managing of company assets since its variables operate on efficiency and optimal operation. The company must review the required funds against the share contributions in order to estimate and draw risk and loss sharing balance.

Besides, the company must review its network of interested investors against their contribution. Thus, full knowledge of these costs will be instrumental in deciding the most cost benefits funding sources available for the company. This implies that financial planning at the company will ensure an easy cash flow forecast and managing internal funds flow.

Considering the nature of the business and bakery industry, the most appropriate source of funding would be bank overdraft and share capital from external investors funding. Bank overdrafts will give the company leverage against temporary cash flow problems and under or overestimations. Besides, bank overdraft is a flexible source of funding for the company.

References

Atrill, P. (2009). Financial management for decision makers. Alabama, AL: Prentice Hall.

Haber, R. (2004). Accounting demystified. New York, NY: American Management Association.

Sirman, D., Hitt, M., & Ireland, R. (2003). Dynamically managing firm resources for competitive advantage: creating value for shareholders. Washington DC, DC: Saettle Academy of Management Publication.

Vance, D. (2003). Financial analysis and decision making: tools and techniques to solve. New York, NY: McGraw-Hill books.

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