MANAGING FINANCIAL INFORMATION AND KNOWLEDGE

Business Consultancy Start-up Project

Business Consultancy Start-up Project

Introduction

The importance of consultancy services for businesses today is immense. While consultancy can be of many types; such as financial, management, operations, marketing etc; however the project in question relates to market research, business intelligence, and knowledge management.

Thus, this report attempts to project a cash flow forecast for the business, estimate required start-up funding in order to avoid a bank overdraft, emphasize effective working capital management for profitability, and the information documents for dissemination to clients.

Cash Flow Forecast

Cash flow forecasting is an essential aspect of financial planning for existent organizations, but even more important for new start-ups. Start-ups need to calculate their cash flow projections conservatively yet with accuracy as these calculations are to be used for general profitability assessment, estimation of financial needs, as well as further presentation to prospective investors.

Cash Flow Forecast

2013

2014

2015

Fee Income

£750,000

£1,500,000

£2,250,000

Less: Expenses

 

 

 

Administrative Staff

£137,500

£198,275

£291,748

Fixed Consultancy Expenses

£20,000

£20,000

£20,000

Variable Consultancy Expense

£5,000

£10,000

£15,000

Consultant Staff

£600,000

£1,030,000

£1,697,440

Total Operating Expenses

£762,500

£1,258,275

£2,024,188

Operating Profit

-£12,500

£271,725

£260,813

Capex

£1,375,000

£25,000

£625,000

Net Cash Flow

-£1,387,500

£246,725

-£364,188

 

Notes To Financials

2013

2014

2015

1. Admin Staff

 

 

 

Head Count

5

7

10

Cost Per Head

£27,500

£28,325

£29,175

Thus Total Admin Expense

£137,500

£198,275

£291,748

 

 

 

 

2. Variable Consultancy Expense

 

 

 

Assumed at 0.667% of total fee income

 

 

 

Fee Income

£750,000

£1,500,000

£2,250,000

Thus, Variable Expense

£5,000

£10,000

£15,000

 

 

 

 

3. Consultant Staff Expenses

 

 

 

Head Count

12

20

32

Cost Per Head

£50,000

£51,500

£53,045

Thus, Total Consultant Staff Expense

£600,000

£1,030,000

£1,697,440

The data used for the stated projections states capital expenditure $2,025,000 over 3 years, with $1,375,000 invested in the first year, $25,000 in the second, and finally $625,000 in the third year. Accordingly, revenue was stated at $750,000 for the first year, increased to $1,500,000 in the second, and reached the figure of $2,250,000 in the third year. This translates into an overall increase of 200% (taking the first year as base), while Year on Year (YoY) increases have been 100 per cent in the second, and 50 per cent in the third.

Staff salaries have been estimated to grow at an overall 3 per cent per annum. In addition, the size of administrative staff is expected to be increased by a 100 per cent by the third year (taking the first year to be the base) while consultant staff is increased in excess of 166 per cent by the third year.

Consultancy expenses for the first year (other than staff expenses) were calculated at $25,000, with a fixed portion of $20,000 and a variable consultancy cost of $5000. The variable portion is proportionate to the level of revenue, with a correlation factor of 0.667 per cent. Thus, with fee income increased to 200 per cent by the third year (taking first year as base), the variable cost portion has also risen accordingly to reach $15,000.

After accounting for all of these details, it is vital to calculate start-up funding required in order to avoid a bank overdraft due to the negative cash balances stated. The stated calculation is shown in the table below. This calculation basically derives the level to which operating income is able to cover the capital expenditure in the three year period, and additionally the level of start up funds which would help avoid the use of a bank overdraft facility.

Required Start-Up Funding To Avoid Overdraft

Particulars

Amount

3-Year Cumulative Income ...