CHAPTER VII

FINANCIAL ASPECT

Financial aspect is the most essential part of a business undertaking

because this will show the viability and the future profitability of the proposed

product. It draws the information needed by the investor before deciding to enter

into business. This serves as a guide of the prospective implementor in making

economic decision.

The whole process involves proper financial planning, control process and

budgeting. Among the processes mentioned, financial planning is considered to

be the most critical. The main objective of having a business is profit

maximization and cost reduction that will lead to business' success.

The figures shown are based on the previous results of the marketing,

technical, management, legal taxation, and financing. The results are quantified

and expressed in this chapter in peso terms to come up with realistic and

understandable figures shown in this aspect.

GENERAL ASSUMPTIONS

Financial Assumptions

In the projection of the financial statements, estimates and assumptions

are used affecting the reflected amounts and disclosures. These assumptions

are made conservatively so that the differences may not be material.

The following are the assumptions used in making the projected financial

statements.

1. The business organization will be a sole proprietorship entity.

2. The business will adopt a calendar year.

3. The business operation will be six (6) days per week, excluding holidays.

4. The pre-operating period will start in October 1, 2018 and normal

operations shall commence on January 1, 2019.

5. The initial capital required is _______.

6. The pre-operating cost will be expensed as incurred.

7. The business will be registered as Barangay Micro Business Enterprise.

8. A work schedule of 8 hours per day will be the basis of the production

process having a production capacity of ___ per day.

9. The production capacity will be the same for the next five years.

10. The production will be based on the market share of the proposed

product.

11. There will be an annual increase of 1% of the selling price of the product.

This increase of the selling price is to compensate for the increase of

selling price of the raw materials. It will be based on the selling price of the

previous year.

12. Purchase of raw materials is made on a cash basis. These will be

purchased at the end of every month.

13. The inventory to be maintained is the Raw Materials and Finished Goods

Inventory. There would be an annual projection of 10% ending inventory.

14. No additional workers are to be hired for the next five years.
15. The bookkeeper is paid on a retainers fee of Php 300 every visit on

Saturdays.
16. There will be no increase of compensation of the bookkeeper for the next

five years.
17. SSS, PhilHealth and PAG-IBIG contribution will be based on the monthly

wage of the worker.

18. There will be an annual increase of 1% of the transportation expense to

cover up the possible increase of fuel prices.

9. Office Supplies expense shall be treated as an outright expense.

10. Prices for the following are expected to increase annually

a. Direct and Indirect Materials 1%

b. Cleaning Supplies 1%

11. The production tools and supplies shall be treated as an outright expense

as its depreciation is considered to be immaterial in amount.

12. The allocation of the following expenses are as follows annually:

a. Electricity

Administrative 25%

Factory Overhead 75%

b. Water

Administrative 20%

Factory Overhead 80%

c. Telecommunication

Administrative 65%

Selling 35%

d. Rent Expense

Administrative 10%

Factory Overhead 90%

13. Permits and Licenses are assumed to be constant for the next 5 years.
14. Employee Benefits expenses and compensation on workers are allocated

directly to Factory Overhead.

15. Compensation of bookkeeper is treated as an administrative expense.

16. Computation of Repairs and Maintenance Expense is based on a

percentage from its cost presented below:

a. Administrative 2% annually

b. Selling - 1% annually

c. Factory Overhead 4% annually

17. The following items will be accrued for the last month of the period:

a. Employee Benefits

i. Social Security System

ii. Philhealth Contribution

iii. PAG-IBIG

b. Expanded Withholding Tax

i. Professional Fee

c. Utilities Expense

i. Electricity Expense

ii. Water Expense

iii. Telecommunications Expense

d. Commission Expense