Revenue or Top Line: Sales of goods or Services, Income recognized when we bill the customer irrespective of when we receive cash for it
Operating Expenditure: Routine expenses to be incurred monthly like Salary, Rent, Transportation etc
Operating Income: Revenue minus Operating Expenditure is Operating Income
Interest on Loans: Interest is the cost associated with using some one else’s money (more on this later)
Earnings before Tax: Operating Income minus Interest is Earnings or Profits before tax
Tax: Corporate Tax charged on Earnings before Tax under income tax act 1961
Earnings after Tax or Net Income or Net Profit is also called Bottom Line. Needless to say Bottom line must be black i.e. positive it must not be red i.e. Loss.
Now let’s use these Terminologies:
I intend to create a business of ______ where I expect my first year Revenues to be _______ and grow it to __________ in five years. My first year Operating Income will be about ___% of Revenues and by 5th year it will be ____% , I am confident of cutting my Operating Expenses from ___% of Revenue to __% by 5th year without sacrificing growth and by 5th year the bottom line will be Rs_______.
Now Let’s See what we need to make the above Statement:-
a. Revenue Forecast for 1 to 5 years
b. Operating Expenses Forecast: - We need Cost of Products sold or Services provided to customers. There are essentially three components to Operating Expenditure i. Cost of Goods Sold ii Selling General and Administrative Expenses and iii depreciation on assets. The last one is called non cash expenses which mean there is no actual cash outflow.
c. We need an Estimate of Initial Capital Expenditure in Property, Plant and Equipment with the estimated useful life so that we are able to proportionately reduce its value due to usage, obsolescence and passage of time.
d. What is the Proportion of Capital Employed which we will be in through our savings, through friends, through relatives and what Proportion we intend to borrow from banks. When we borrow its called Debt, we need to pay interest on the Loan and will have to repay the loan at periodic intervals of time.
e.We need to know the rate of interest we will pay on the loan
f. We need to know the rate of Income Tax.
Pro Fitness is a mobile phone application which has been designed by a veteran Body builder and the basic version is expected to be available for download for free. The step up version will be available for Rs 100 per month subscription and the Advanced Version is available for Rs 500 per month. The cost of making the application is estimated to be a one time cost of Rs 6 lakhs with a recurring cost of Rs 55 thousand for monthly updates. Additionally the members can opt for a personal fitness instruction program of 15 days in their city free of cost for Step up and professionals and Rs 4000 for free members and general public and the schedule for about 20 major cities is planned which will be events for promoting fitness among professional sports people and athletes. The cost of holding these events is expected to be Rs 3 lakhs per venue. We have fitness equipment and gym chain willing to sponsor up to 50% of these costs, we expect 2000 members in professional category and 5000 members in the Step up category and about 20000 members in the free category.
Our customers are gym which wants to involve their members continuously and keep them motivated to pursue a program of fitness and customize the program to suit the client. It will allow the Gym to increase the engagement with the member in order to prolong the membership duration.
Our customers are also the Gym members who do not get quality guidance in their local gym and can thus use our app to guide them through a routine.
Prepare a Statement of Revenue if the Growth in members is expected to be 10% per annum and the fee increases by 5% per annum.