REPORT ON FINANCIAL PLANNING AND STRATEGY FOR INTRODUCTION OF APPLE IPAD ON THE HUNGARIAN MARKET TO UNDERSTAND HOW THE CASHFLOW (REVENUES AND COSTS) ARE EXPECTED IN THE FIRST YEAR
IPad Hungary Kft is looking for investors for the introduction of IPad on the Hungarian market. Invest and Co. has shown interest in the investment, and the leading investment manager asked for a summary of the financial planning and strategy focusing on a the cashflow to understand how the costs vs. revenues are expected to occur in the first fiscal year after introduction. This request arrived to Ipad Hungary Kft on 1st April, 2010 with a deadline of 1st May, 2010.
1. Analyzing Revenues
The Finance Department in charge of the financial reports together with the existing members of the proposed Sales Team analyzed the possible revenues in the next 12 months after introduction.
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Appendix 1 (Cashflow) describes how the revenues are planned to be achieved with the help of the sales process and ongoing sales activities within this period. These figures have been found realistic and have been validated by the financial controller as well.
Revenues are only built up from money earned from the prices of sold IPad devices and its accessories. No other revenue sources have been identified during the creation of this report by Finance Department or Sales Team.
Ø Revenue calculation is based on the standard price of IPad:
145.000 gross HUF / packs
Ø Accessory calculation is based on an average price of IPad accessories:
45.000 gross HUF / pieces
Total revenue for the period (12 months) is expected to be: 1.011.360 k HUF
2. Analyzing Costs
The Finance Department in charge of the financial reports together with the HR Department and Supply Manager analyzed the expected costs in the next 12 months after introduction.
Appendix 1 (Cashflow) describes how the costs are expected to occur in the next 12 months.
Costs were divided into 4 main categories which are the followings:
Ø HR costs:
HR costs contain the salary and tax that the company needs to pay to its employees working on the sales and support of the IPad devices. It also contains a central overhead cost that is the contribution cost to the centralized functions such as HR, Finance from this new department.
Ø Device costs:
The IPad devices are purchased from the Apple Factory in the US and the device cost cover the reseller price of these
Ø Accessories costs:
The IPad accessories are purchased from the an Apple subsidiary company in China and accessories cost cover the reseller price of these
Ø Other costs:
these cover costs of rental fees, transport, hiring, advertising, telephony, administration, legal costs and taxes
Total costs for the period (12 months) is expected to be: 796.280 k HUF
3. Calculating Cashflow
The most important statement of financial planning, the cashflow of the project has been created by the Finance Department to give a clear picture on the expectation of costs and revenues in first fiscal year. High-level summary can be found in Appendix 1.
As a condition of the figures in Appendix 1,sales volume and staffing level prediction has been also created by the Finance Department which can be found in Appendix 2.
Summary of Cashflow:
The first two months of the first year will be closed with a negative balance.
After the first two months revenues start overreaching the costs which will last till the end of the year according to the predefined plans and will generate a positive balance overall as well for the project.
Overall Profit: + 215.080 k HUF
Ø Revenues are generated from the sales activity of devices and accessories only. This area has key importance and requires a lot of attention. As a conclusion it can be stated that Sales Team needs to be supported very well and pushed to achieve results in order t reach the yearly objective. Total Revenue: 1.011.360 k HUF
Ø Costs are divided into 4 main categories: HR costs, device costs, accessories costs and other costs. HR costs needs to be controlled and kept on a minimal level by HR Department, the device and accessories costs need to be controlled by the Supplier Manager to ensure that price increase do not affect the profit of the company. Total Cost: 796.280 k HUF
Always on Time
Marked to Standard
Ø The first two months of the first year will be closed with a negative balance, therefore the company needs to pay attention to the overall liquidity and needs to assign financial resources temporarily to this department. Afterwards the balance will turn positive and revenues will be saved. Total Profit: 215.080 k HUF
Based on the findings and conclusions drawn from them, the most important recommendation of IPad Hungary is to build up an effective sales system to generate revenue as it is expected. This system needs to be based on bonus rewards for the sales representatives to motivate them in the achievement of their monthly and yearly objectives.
The second most important recommendation besides this is that Supplier Manager needs to sign a long-term contract with a fixed price on devices and accessories with the factories so that these costs cannot cause surprises with them increasing fast and tremendously.
Also the team recommends to ask the Finance Department to implement the bonus system in a way that it is the most profitable in terms of tax optimization.
High-Level Cashflow statement for fiscal year 1. (All figures are in 1000 HUF).
Prediction of sales volume (provided by the Sales Team) and prediction of staffing level (provided by HR Department).