Budget for FY'19-20 and Financial Plan

Assignment Taken

Case Understanding

BCS Solution Summary

Solution

(i) The assumption and calculations used while preparing budget are:-

The previous year growth in sales was 74.7% (from ’17-18 to ’18-19), which is roughly equal to 4.7% growth per month. For the next financial year, we assume a growth rate of 6% due to the revamped marketing techniques, new HR solutions, Latest IT infrastructure and stability obtained from the past 2 years of experience.

The profit margin per product is assumed to be the same as the previous year. That is no change in cost of procurement. This is a conservative estimate and it ignores the cost reductions due to increase in purchases (or sales). This means that bulk discounts which could be obtained from the vendors are ignored to prepare a conservative budget. However, from historical data, products such as milk have always had low profit margins and it is difficult to cut the cost of procurement. Eg; Amul ( found in 1946) has a total profit of only 6 million while the revenue was 2 Billion (all in US dollars and data from 2012-13 Amuls’ income statement) Note: currently, profit margin for DND is 11%. Hence cost is assumed to be 89% of the revenue.

IT: For converting the cost for IT infrastructure such as SAP business one ERP and Tableau subscription we have used 75.62 as the conversion rate of dollar to rupees.

IT: The SAP business one ERP is used by 2 corporate employees if the IT dept. At this stage of the company, 2 dashboards are sufficient. Note that one Tableau subscription is also used for better planning and growth. The total expense for IT is 3.3L/year.

HR: Since the sales are increasing, we are planning to hire 4 delivery boys every month. Also 3 more corporate employees will be hired after 6 months to account for the growth. This means that by the year end, the company will have 128 delivery boys and 13 corporate staffs. This will be enough since various HR training techniques (under HR costs in Budget) will increase productivity per employee. Also, the salaries are kept the same as the previous year.

Marketing: To overcome the high expense in marketing, we are using Digital tools such as SEOs and Social media, as these are cheap and effective at the same time. We will also employ OOHs which are relatively cheaper to reduce the expense for advertising. We believe that for this year, we will be targeting upper middle class in Tier-1 cities and hence such type of advertising will have maximum impact. From the coming years we will start using newspaper and TV ads, while we will be expanding to Tier1 and Tier-2 cities. The total marketing expense for the year is 2L

Other overheads: This was 3L/month in the previous year. Conservatively, we assume an increase of 4%/month for this expense.

Other points:-

The total sales for the year is 17.50 crores.

The net profit (after accounting for all costs) is 15L.

The total cost is 17.35 crores. This is divided into 15.5 crores (cost of procurement)+ 1.68 crores (salary)+ 0.46 (crores)

(ii) The financial plan (attached) is a projection of sales and net income for the coming 5 fiscal years. Here we can see that net income increases by 49 % each year. This prediction is made on the consideration that a larger customer base in dense tier 1 cities for the next 5 years will ensure high profitability. After this time period, profit might fluctuate due to expansion plans into Tier-2 and tier-3 cities, other products effect (now we assume that milk is our primary product), and backward integration.

The attached PDFs are;

1)      Budget for the next fiscal year

2)      The financial plan (income projections) for the next 5 years

Conclusion

Attached File Details