Preparation of Financial Budgeting for each department with Cash Flow statement & Profit and Loss statement for achieving Break Even in one year

Assignment Taken

Preparation of Financial planning for the Organization for FY 2021-22

Case Understanding

The Case of Airway delivery has its focus on providing efficient drone delivery to the customer based on hyperlocal delivery model. As we know, that the drone can be used to carry multiple weights to provide the items, hence we had 4 types of delivery modes with premium pricing options. A thing which is very clear in the case is that the user whom the organization shall target must have the financial power as in high purchasing power, also who has the needs to have immediate delivery of day-to-day items which may range from groceries shopping, or restaurant order or rather medical supplies. The objective of the organization is to penetrate in high-purchasing customer segment with the habit of ordering online who is ready to pay the money for fast delivery. The organization has good budget of 10Cr which can be allocated to various departments in order to achieve the sales target to get Break – even in one year.

BCS Solution Summary

The solution here entails a budget allocation of more than 8.8 Cr with the budget usage of around 5 Cr. With the special focus on department who will be responsible for demand generation and capacity development, the Departments such as Marketing, IT & Infra, and HR will be needing the most budget allocation. Unit Economics: 1. Average Price Per order: It is assumed that normal delivery of Restaurant and Groceries weigh more than 500 gm upto 1000 gms. Thus, it is assumed Type B & C will constitute more orders per day. Hence, the average order cost is calculated as Rs 85/- per order 2. Number of deliveries for per day: As the short-range drones can travel up to 150 KMs per day. On average round trip delivery distance is around 5 – 6 Kms. The number of delivery on single charge can be up to 200 KMs. Profit and Loss: With the so much money been spent, it is imperative to understand that the business shall not make profit in one year. In one year, the organization has made a loss of – 47615800 Rs.\ With the FC expenditure of 3760000 and the Sales revenue generated as 4896000 for one year, it is imperative to have a break-even to be achieved in one year in the month of November NPV of the project : -1336292.07 IRR of the project: 3.43%

Solution

 

Overall Budget Available for FY 2021 - 22 

10 Cr for Fiscal Yr 2021 – 22

Department Budget Allocation

	Budget Division	In Cr
	Budget Available	10
Sr. NO	Departments	Budget Allocation
1	Marketing Department	2.50
2	HR Department	1.80
3	IT & Operation Department	2.50
4	Infrastructure Development	1.00
5	Miscellaneous Expenses	1.00
6	Emergency Budget	1.20

 

 

Strategies for Budget Allocation

1. Since the organization needs to penetrate hard into the target market, hence high amount of budget needs to be allocated for Marketing, IT & Operation, and HR department to initiate the starting.
2. As the market response is really unknown, hence the finance department needs to have an Emergency Fund (1.2 Cr) in hand so as to tackle if the planning does not go as planned

 

Unit Economics:

1. Average Price Per order: It is assumed that normal delivery of Restaurant and Groceries weigh more than 500 gm upto 1000 gms. Thus, it is assumed Type B & C will constitute more orders per day. Hence, the average order cost is calculated as Rs 85/- per order
2. Number of deliveries for per day: As the short-range drones can travel up to 150 KMs per day. On average round trip delivery distance is around 5 – 6 Kms. The number of delivery on single charge can be up to 200 KMs.
   1. Short Range Drones – 7.5 Hrs /  Single Charge
   2. Short Range Drones – 15 Hrs / Double Charge
   3. Charging_Short Range Drones – 2 hrs
   4. Charging Long Range Drones -4 Hrs
   5. Maximum Delivery orders based on Double Charge – 320

Category of Couriers	Courier Weight	Price	%share	Average Delivery Cost	Yearly Deliveries	Monthly deliveries	Daily Deliveries
A	<500	60	20%	12	8899	742	25
B	<1000	80	40%	32	17799	1483	49
C	<5000	100	35%	35	15574	1298	43
D	<10000	110	5%	5	2225	185	6
Average				85	44497	3708	124

 

Range	Avg Round Trip	No of Delivery’s (1st Cycle)	Maximum Utilisation Per Day In Hrs	Charging Time	2nd Cycle	Drone Utilisation per Day
150	5	30	7.5	2	7.5	15
150	5	30	7.5	2	7.5	15
150	5	30	7.5	2	7.5	15
150	5	30	7.5	2	7.5	15
650	5	80	20	4	0	20
		200	50
Distance	5		Maximum of deliveries in one day	320
Time	15

 

Sales Revenue: The Number of deliveries per month will start from 50 orders and will subsequently grow by 20 order per month upto 270 orders the end. Hence, with the average delivery price of 85 / order, the organization is aimed at achieving Rs. 4896000 /- in FY 2021 -22

Cost Structure

1. Marketing Cost: This cost will include the cost spent in digital marketing as in the form of geo-fencing. As the company is expanding into the new domain. Thus, there needs to be an extensive money spent on marketing. With the budget allocation of 2.5 Cr, the utilization expected is around 1.8 Cr. With the additional budget shall be used in case of new ventures related to marketing.
2. Admin & Human Resource Cost: As most of the cost incurred will be related to expenditure in having human resource at hand also, money spent in the form of rent and Training Expenses related to workforce. The budget allocated for the department is around 1.80 Cr with 1.6 Cr in use.
3. Infra and IT Cost: This is the area where most of cost is going to get incurred as this will increase our capacity to work in accordance with demand. Since the whole drone based delivery platform is essentially based on IT Backbone, hence following are the areas of expenditure. The budget allocated for the department is 2.50 Cr, but with the budget usage of around 1.35 Cr. The remaining budget can be used in case of any new cost come up.
   1. Software
   2. CRM: For Customer management
   3. Website: For customer engagement and brand development
   4. API integration: For smooth functioning between other platforms
   5. Maintenance Cost: As the drones might need repair as batteries of drones shall get depleted easily.

Profit and Loss:

With the so much money been spent, it is imperative to understand that the business shall not make profit in one year. In one year, the organization has made a loss of – 47615800 Rs.\

Break Even Calculation

Break Even Calculation
Fixed Cost	3760000	3760000	3760000	3760000	3760000	3760000	3760000	3760000	3760000	3760000	3760000	3760000	3760000
Sales Generated	4896000	127500	178500	229500	280500	331500	382500	433500	484500	535500	586500	637500	688500
Remaning Cost		-3632500	-3454000	-3224500	-2944000	-2612500	-2230000	-1796500	-1312000	-776500	-190000	447500	1136000
Break Even Month	November

The NPV for the project, considering a 10% discount rate is -1336292.07, which with respect to currrent 1 Year Projection seems low.

However the IRR for the project is around 3.43%, for 1 year, which can be considered good.

Conclusion

The break even shall be achieved in the month of November. The business can generate good profits, if the target market is increased also, if the number of drones are increased. In order to estimate better NPV, projections for Next 5 years is required to have an adequate estimation of the organisation.

Attached File Details

View Attachment file (Financials.pdf)