Effective Ways to Financially Prepare for Expansion | YRC

1
10/5/2017
Effective Ways to Financially Prepare for
Expansion YRC Your Retail Coach
E"ective Ways to Financially Prepare for
Expansion YRC Jun 26, 2017
Financial preparation is a critical part of any
business expansion project. Talking about
financial preparation, three aspects that come to
the forefront are the financial liability that
will arise from a new project, financial ability
to execute the project and financial feasibility
of carrying out the project.
A business expansion project shall increase the
financial liabilities (increased costs) which
have to be sourced internally and/or externally
(revenue generation, loans and borrowings)
reflecting the financial ability of the business
enterprise to support expansion. The third
aspect is determining the financial feasibility
(profitability, healthy ROI) of executing an
expansion project. The three financial pillars
(liability, ability and feasibility) and project
financial management are elaborately discussed
here to help businesses e"ectively prepare on the
financial Mfreosnstafgoer uthseir expansion
projects. Financial Liability
http//www.yourretailcoach.in/blog/effective-ways-
to-financially-prepare-for-expansion/
2
10/5/2017
Effective Ways to Financially Prepare for
Expansion YRC Your Retail Coach
Costs of business expansion are of two types
capital expenditure and direct and operating
costs. The capital expenditure includes
investments in machinery, equipment, furniture,
space, set-up and establishment costs etc. The
direct and operating costs include the
expenditures to run the new project. This
includes the purchase of inventory and raw
materials, wages and salaries, rent and bills,
repair and maintenance, insurance and legal
expenses etc. Capital expenditure and direct and
operating costs associated with a project
constitute its financial liabilities and have a
direct bearing on its profitability. Therefore,
it becomes important that a business enterprise
makes a detailed assessment of these costs.
These costs have to be recovered to create
surpluses. While the investment in capital
assets may be recovered in a phased and indirect
manner, the direct and operating costs have to
be covered on the go. Through cost accounting, a
business enterprise can get a clear picture of
the financial liabilities of a proposed project
based on approximate figures and
prices. Financial Ability The financial ability
of a business reflects its knack to procure
additional capital funds required to establish a
new project and generate su cient revenue to
cover the direct costs and operating expenses.
Some of the pertinent questions that arise in
capital funding decisions are What is the
amount of fresh capital required (cost of new
assets, other long- term establishment
costs) What will be the composition of capital
(debt-equity ratio, proportion of self- funding
etc) What the potential sources of capital
(loans, credit, angel investors, mortgage
etc) What are the costs associated with procuring
capital from various sources (interest rates,
collateral, ease of acquiring funds etc) The
second part is revenue generation from the new
project to cover its direct costs and operating
expenses. A business enterprise needs to prepare
realistic revenue projections which will reflect
the quantum and frequency of cash flow.
Liquidity is a crucial element of financial
management in business. Businesses need to
maintain a healthy working capital ratio to
ensure smooth flow of operations in any of its
projects or business units. In the event of
liquidity crunch, which may happen because of
poor revenue collection resulting from poor
sales, credit policies, bad debts etc,
operations may come to a halt leading to further
revenue losses.
MessTahgeeus financial ability of a business
reflects its knack to procure additional capital
funds
http//www.yourretailcoach.in/blog/effective-ways-
to-financially-prepare-for-expansion/
3
Effective Ways to Financially Prepare for
Expansion YRC Your Retail Coach required to
establish a new project and generate su cient
revenue to cover the direct costs and operating
expenses.
10/5/2017
Financial Feasibility The financial motive behind
every business venture or a project is to
generate profits. After ascertaining the costs
and revenue generation capabilities of a
project, a business enterprise would be in a
suitable position to determine the financial
feasibility of a proposed project. Financial
feasibility of a project determines its fate as
to whether it should be executed or not. If a
project is not able to able to generate a
healthy and steady flow of revenue, it would not
be able to cover its costs. ROI also indicates
as to how soon the project will be able to reach
its breakeven point. There are hosts of financial
metrics used in the financial analysis which
includes profit margins, return on equity,
returns on assets etc. Ascertaining the
financial feasibility involves preparation of
various financial statements like profit and
loss account, income and expenditure account,
balance sheet, statement of sources and
application of funds etc based on approximate
figures and prices.
Financial feasibility of a project determines its
fate as to whether it should be executed or not
Project Financial Management Once a project is
financially approved, the next step is laying
down the base of its financial management.
Financial planning has been broadly discussed
above. The other important areas are identifying
the key financial processes, structuring of the
finance department/team and design for control
measures. For a new project, the primary
financial processes are procurement and
investment or allocation of capital funds,
regulatory compliances, accounting record
keeping and information system, processing of
receivables and payables, cash flow and credit
management, liaisoning with other departments and
audit. Each of these processes comprises of
several operations and activities which have to
be streamlined and documented. This can be done
by developing Standard Operating Procedures or
SOPs that serves as a guide map for employees to
execute their routine duties while maintaining
the rules and standards. Finance is a sensitive
area for any organization or project. Apart from
prudence and professionalism trustworthiness and
integrity are essential competencies in the
members of the finance and accounts team.Adequate
control measures are crucial to the functioning
of the finance department. Authority,
accountability and responsibilities must be
clearly defined leaving no room for any sort of
Mamesbsiaggueituiess. Along with finance SOPs,
periodical audits must be conducted to ensure
that rules and regulations pertaining to
accounting, reporting and other
http//www.yourretailcoach.in/blog/effective-ways-
to-financially-prepare-for-expansion/
4
10/5/2017
Effective Ways to Financially Prepare for
Expansion YRC Your Retail Coach processes
like regulatory compliance and cash handling are
being diligently followed.
Authority, accountability and responsibilities
must be clearly defined leaving no room for any
sort of ambiguities.
Financial preparedness and vision are vital for
any economic venture. Without the financial
ability, a business enterprise will not be able
to establish a new project and cover its
financial liabilities. And even if they can,
doing so without sound financial feasibility
will render the whole project unworthy or
loss-making causing it to become a financial
burden on the existing business and
operations. To know more about Financially
Prepare for Business Expansion get in touch
with our Retail Experts on consult_at_mindamend.net
Author Bio Varun Shah Chief Finance O cer
Get Advice to Financially Prepare for Business
Expansion ?
Related Blogs Five Ways to Attract Investors for
Your Business YRC
5 Things to do After GST Implementation YRC
How Do I Reduce My Operating Cost?
Is Your Brand Ready For Expansion??? YRC
Message us
http//www.yourretailcoach.in/blog/effective-ways-
to-financially-prepare-for-expansion/
5
10/5/2017
Effective Ways to Financially Prepare for
Expansion YRC Your Retail Coach
Search
RSS Feed
Subscribe to our Newsletter Email Subscribe
Recent Posts 5 Things to Check Before Investing
in a Franchise Brand YRC
6 Things you Must Keep a Check on Before Entering
Into Retail YRC
How can an Indian SME Attract Investment? YRC
How SOPs will help in Franchise Business
Expansion? YRC
Is Your Brand Ready For Expansion??? YRC
ADS
Message us
http//www.yourretailcoach.in/blog/effective-ways-
to-financially-prepare-for-expansion/