Beyond-Wash & Auto detailing Industry

Beyond-Wash & Auto Detailing Industry

Pro-forma balance sheet

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Assumptions made for the balance sheet

The balance sheet shown above is based on various assumptions. The figures are based on market trends and thus justified despite the assumptions. For instance,

The figures provided are aggregated for 12 months for the projected year ending 2023.

Since the business will offer services as the major revenue-generating event, car detailing and accessories compose the stock.

The stock is taken as 5.71% of the sales revenue. The rest of the sales revenue is raised from service activities.

Borrowings relate to a long-term loan obtained to fund operations

Pro-forma income statement

Assumptions made for the income statement

An assumption is made that the company will start running at a loss in the first five months. This is so because the business will be new in the market, and not many customers will recognize it. However, the sales revenue will grow with time, and the company will report a positive net profit margin in the sixth month and continue with a growing trend. Further, the business’s operations assume a lower inflation rate and a stable economy. Notably, the income statement is justified based on these assumptions.

Pro-forma cash budget

Assumptions made for the cash budget

It is assumed that the company will manage to collect its account receivables in a period of fewer than two months. Also, it is assumed that an increasing trend in company performance will be maintained across the year and thus achieve the anticipated cash position across the 12 months. Notably, the cash budget is justified by the stable economic conditions that exist in the region.

Tangible and intangible cost of capital

The business setup will require tangible and intangible capital costs. As the income statement shows, bank interest and charges are the tangible cost of capital. They represent the additional costs to be incurred by the company pending the capital that is acquired (Caggese & Pérez-Orive, 2022). The bank loan obtained as borrowings indicated in the proforma balance sheet will be paid with the additional interest expenses. Further, bank charges will be incurred in processing the loan. There are no other tangible costs related to the capital since the owner will raise the other funding required. However, intangible costs will be incurred regarding the debt capital used to fund the business. The intangible costs are related to debt capital and owners’ equity.

Regarding debt capital, intangible costs will be accumulated for the period incurred while waiting for the loan to be processed. Regarding owners’ equity, the intangible costs are related to the opportunity costs missed by the funds invested in the business instead of a different one. Notably, the costs are insignificant compared to the anticipated profits, and thus, the funding source is justified.

How to grow the business in the next five years

Assuming the business has been operating profitably for five years, certain measures would be considered to ensure more growth is achieved in the next five years. First, the business will consider returning earnings into business activities to enhance service delivery. For instance, retained earnings will be used to open more business branches in the region, which in turn will boost the company’s profit levels. Another way to ensure the business remains successful and strong in the next five years is by creating a superior brand name. Essentially, this is so because a superior brand name will ensure customers remain loyal to our business and even bring in new customers. One way to boost the business brand name is through offering exemplary services to our customers.

Various aspects will also be considered while undertaking an equity approach to valuing the business in the next five years. The company will aim to be listed on the stock exchange so its stock can be publicly traded. By doing so, various aspects, such as market price per share, will be used to value the company. However, before the company is listed on the stock exchange, the book value, which represents the equity owned by shareholders, will be used to evaluate the company. The value will be obtained from the annual balance sheet by subtracting total liabilities from the company’s assets (Pinto et al., 2019). Also, an earnings multiplier will be considered in the equity approach, whereby company profits will depict the company’s real value.

References

Caggese, A., & Pérez-Orive, A. (2022). How stimulative are low real interest rates for intangible

Capital? European Economic Review, 142, 103987.

Pinto, J. E., Robinson, T. R., & Stowe, J. D. (2019). Equity valuation: A survey of professional

Practice. Review of financial economics, 37(2), 219-233.

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Overview: (Please see attached previous assignments for reference)
Using the same business you started in the first assignment, Your Business Venture, you will continue to build a financial plan for the business.

Instructions
Write a 4–5 page paper in which you:

Prepare a pro forma balance sheet for the first 12 months of your business. Include the assumptions on which it is based. Justify your balance sheet.

Beyond-Wash & Auto detailing Industry

Prepare a pro forma income statement for the first 12 months of your business. Include the assumptions on which it is based. Justify your income statement.

Prepare a pro forma cash budget for the first 12 months of your business. Include the assumptions that you have made when creating the budget. Justify your budget.

Scrutinize tangible and intangible costs of obtaining financial capital for your business start-up to determine whether the costs justify the implementation of the funding source.

Assume your business is five years old and running profitably and consider how you would grow your business over the next five years.
Determine the specific details that would make the equity approach to valuing your business worthwhile. Provide a rationale with your response.

This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check with your professor for any additional instructions.
The specific course learning outcome associated with this assignment is:

Assess whether the costs of obtaining capital for a business justify the use of the funding source and whether the equity-based valuation of the business is appropriate.