As a senior executive, you may think you know what Job Number 1 is: developing a killer strategy. In fact, this is only Job 1a. You have a second, equally important task. Call it Job 1b: enabling the ongoing engagement and everyday progress of the people in the trenches of your organization who strive to execute that strategy. A multiyear research project whose results we described in our recent book, The Progress Principle,[ 1] found that of all the events that can deeply engage people in their jobs, the single most important is making progress in meaningful work. Even incremental steps forward -- small wins -- boost what we call "inner work life": the constant flow of emotions, motivations, and perceptions that constitute a person's reactions to the events of the work day. Beyond affecting the well-being of employees, inner work life affects the bottom line.[ 2] People are more creative, productive, committed, and collegial in their jobs when they have positive inner work lives. But it's not just any sort of progress in work that matters. The first, and fundamental, requirement is that the work be meaningful to the people doing it. In our book and a recent Harvard Business Review article,[ 3] we argue that managers at all levels routinely -- and unwittingly -- undermine the meaningfulness of work for their direct subordinates through everyday words and actions. These include dismissing the importance of subordinates' work or ideas, destroying a sense of ownership by switching people off project teams before work is finalized, shifting goals so frequently that people despair that their work will ever see the light of day, and neglecting to keep subordinates up to date on changing priorities for customers. But what about a company's most senior leaders? What is their role in making -- or killing -- meaning at work? To be sure, as a high-level leader, you have fewer opportunities to directly affect the inner work lives of employees than do frontline supervisors. Yet your smallest actions pack a wallop because what you say and do is intensely observed by people down the line.[ 4] A sense of purpose in the work, and consistent action to reinforce it, has to come from the top. Four traps To better understand the role of upper-level managers, we recently dug back into our data: nearly 12,000 daily electronic diaries from dozens of professionals working on important innovation projects at seven North American companies. We selected those entries in which diarists mentioned upper- or top-level managers -- 868 narratives in all. Qualitative analysis of the narratives highlighted four traps that lie in wait for senior executives. Most of these pitfalls showed up in several companies. Six of the seven suffered from one or more of the traps, and in only a single company did leaders avoid them. The existence of this outlier suggests that it is possible for senior executives to sustain meaning consistently, but that's difficult and requires vigilance. Thi ...

1. As a senior executive, you may think you know what Job
Number 1 is: developing a killer strategy. In fact, this is only
Job 1a. You have a second, equally important task. Call it Job
1b: enabling the ongoing engagement and everyday progress of
the people in the trenches of your organization who strive to
execute that strategy. A multiyear research project whose
results we described in our recent book, The Progress
Principle,[ 1] found that of all the events that can deeply engage
people in their jobs, the single most important is making
progress in meaningful work.
Even incremental steps forward -- small wins -- boost what we
call "inner work life": the constant flow of emotions,
motivations, and perceptions that constitute a person's reactions
to the events of the work day. Beyond affecting the well-being
of employees, inner work life affects the bottom line.[ 2] People
are more creative, productive, committed, and collegial in their
jobs when they have positive inner work lives. But it's not just
any sort of progress in work that matters. The first, and
fundamental, requirement is that the work be meaningful to the
people doing it.
In our book and a recent Harvard Business Review article,[ 3]
we argue that managers at all levels routinely -- and unwittingly
-- undermine the meaningfulness of work for their direct
subordinates through everyday words and actions. These include
dismissing the importance of subordinates' work or ideas,
destroying a sense of ownership by switching people off project
teams before work is finalized, shifting goals so frequently that
people despair that their work will ever see the light of day, and
neglecting to keep subordinates up to date on changing
priorities for customers.
But what about a company's most senior leaders? What is their
role in making -- or killing -- meaning at work? To be sure, as a
high-level leader, you have fewer opportunities to directly
affect the inner work lives of employees than do frontline

2. supervisors. Yet your smallest actions pack a wallop because
what you say and do is intensely observed by people down the
line.[ 4] A sense of purpose in the work, and consistent action
to reinforce it, has to come from the top.
Four traps
To better understand the role of upper-level managers, we
recently dug back into our data: nearly 12,000 daily electronic
diaries from dozens of professionals working on important
innovation projects at seven North American companies. We
selected those entries in which diarists mentioned upper- or top-
level managers -- 868 narratives in all.
Qualitative analysis of the narratives highlighted four traps that
lie in wait for senior executives. Most of these pitfalls showed
up in several companies. Six of the seven suffered from one or
more of the traps, and in only a single company did leaders
avoid them. The existence of this outlier suggests that it is
possible for senior executives to sustain meaning consistently,
but that's difficult and requires vigilance.
This article should help you determine whether you risk falling
into some of these traps yourself -- and unknowingly dragging
your organization into the abyss with you. We also offer a few
thoughts on avoiding the problems, advice inspired by the
actions and words of a senior leader at the one company that did
so.
We don't claim to have all the answers. But we are convinced
that executives who sidestep these traps reduce their risk of
inadvertently draining meaning from the work of the people in
their organizations. Those leaders also will boost the odds of
tapping into the motivational power of progress -- something
surprisingly few do.
We surveyed 669 managers at all levels of management, from
dozens of companies and various industries around the world.
We asked them to rank the importance of five employee
motivators: incentives, recognition, clear goals, interpersonal
support, and progress in the work. Only 8 percent of senior
executives ranked progress as the most important motivator.

3. Had they chosen randomly, 20 percent would have done so. In
short, our survey showed that most executives don't understand
the power of progress in meaningful work.[ 5] And the traps
revealed by the diaries suggest that most executives don't act as
though progress matters. You can do better.
Trap 1: Mediocrity signals
Most likely, your company aspires to greatness, articulating a
high purpose for the organization in its corporate mission
statement. But are you inadvertently signaling the opposite
through your words and actions?
We saw this dynamic repeatedly at a well-known consumer
products company we'll call Karpenter Corporation, which was
experiencing a rapid deterioration in the inner work lives of its
employees as a result of the actions of a new top-management
team. Within three years of our studying Karpenter, it had
become unprofitable and was acquired by a smaller rival.
Karpenter's top-management team espoused a vision of
entrepreneurial cross-functional business teams. In theory, each
team would operate autonomously, managing its share of the
company's resources to back its own new-product innovations.
During the year we collected data from Karpenter teams, the
annual report was full of references to the company's innovation
focus; in the first five sentences, "innovation" appeared three
times.
In practice, however, those top managers were so focused on
cost savings that they repeatedly negated the teams' autonomy,
dictated cost reduction goals that had to be met before any other
priorities were, and -- as a result -- drove new-product
innovation into the ground. This unintended, de facto hypocrisy
took its toll, as a diary excerpt from a longtime Karpenter
product engineer emphasizes:
Today I found out that our team will be concentrating on [cost
savings] for the next several months instead of any new
products.… It is getting very difficult to concentrate on
removing pennies from the standard cost of an item. That is the
only place that we have control over. Most of the time, quality

4. suffers. It seems that our competition is putting out new
products at a faster rate.… We are no longer the leader in
innovation. We are the followers.
This employee's work had begun to lose its meaning, and he
wasn't alone. Many of the other 65 Karpenter professionals in
our study felt that they were doing mediocre work for a
mediocre company -- one for which they had previously felt
fierce pride. By the end of our time collecting data at Karpenter,
many of these employees were completely disengaged. Some of
the very best had left.
The mediocrity trap was not unique to Karpenter. We saw it
revealed in different guises in several of the companies we
studied. At a chemicals firm, it stemmed from the top managers'
risk aversion. Consider these words from one researcher there:
A proposal for liquid/medical filtration using our new
technology was tabled for the second time by the Gate 1
committee (five directors that screen new ideas). Although we
had plenty of info for this stage of the game, the committee is
uncomfortable with the risk and liability. The team, and myself,
are frustrated about hurdles that we don't know how to answer.
This company's leaders also inadvertently signaled that, despite
their rhetoric about being innovative and cutting edge, they
were really more comfortable being ordinary.
Trap 2: Strategic 'attention deficit disorder'
As an experienced leader, you probably scan your company's
external environment constantly for guidance in making your
next strategic moves. What are competitors planning? Where are
new ones popping up? What's happening in the global economy,
and what might the implications be for financing or future
market priorities? You are probably brimming with ideas on
where you'd like to take the company next. All of that is good,
in theory.
In practice, we see too many top managers start and abandon
initiatives so frequently that they appear to display a kind of
attention deficit disorder (ADD) when it comes to strategy and
tactics. They don't allow sufficient time to discover whether

5. initiatives are working, and they communicate insufficient
rationales to their employees when they make strategic shifts.
Karpenter's strategic ADD seemed to stem from its leaders'
short attention span, perhaps fueled by the CEO's desire to
embrace the latest management trends. The problem was evident
in decisions at the level of product lines and extended all the
way up to corporate strategy. If you blinked, you could miss the
next strategic shift. In one employee's words:
A quarterly product review was held with members of the [top
team] and the general manager and president. Primary outcome
from the meeting was a change in direction away from spray jet
mops to revitalization of existing window squeegees. Four
priorities were defined for product development, none of which
were identified as priorities at our last quarterly update. The
needle still points north, but we've turned the compass again.
At another company we studied, strategic ADD appeared to
stem from a top team warring with itself. Corporate executives
spent many months trying to nail down a new market strategy.
Meanwhile, different vice presidents were pushing in different
directions, rendering each of the leaders incapable of giving
consistent direction to their people. This wreaked havoc in the
trenches. One diarist, a project manager, felt that rather than
committing herself to doing something great for particular
customers, she needed to hedge her bets:
The VP gave us his opinion of which target candidates [for new
products] may fit with overall company strategy -- but, in
reality, neither he nor anyone in our management structure
knows what the strategy is. It makes this project a real
balancing act -- we need to go forward, but need to weigh
commitments very carefully.
If high-level leaders don't appear to have their act together on
exactly where the organization should be heading, it's awfully
difficult for the troops to maintain a strong sense of purpose.
Trap 3: Corporate Keystone Kops
In the early decades of cinema, a popular series of silent-film
comedies featured the Keystone Kops -- fictional policemen so

6. incompetent that they ran around in circles, mistakenly bashed
each other on the head, and fumbled one case after another. The
title of that series became synonymous with miscoordination.
Our research found that many executives who think everything
is going smoothly in the everyday workings of their
organizations are blithely unaware that they preside over their
own corporate version of the Keystone Kops. Some contribute
to the farce through their actions, others by failing to act. At
Karpenter, for example, top managers set up overly complex
matrix reporting structures, repeatedly failed to hold support
functions (such as purchasing and sales) accountable for
coordinated action, and displayed a chronic indecisiveness that
bred rushed analyses. In the words of one diarist:
Last-minute changes continue on [an important customer's]
assortments. Rather than think through the whole process and
logically decide which assortments we want to show [the
customer], we are instead using a shotgun approach of trying
multiple assortments until we find one that works. In the
meantime, we are expending a lot of time and effort on potential
assortments only to find out later that an assortment has been
dropped.
Although Karpenter's example was egregious, the company was
far from alone in creating chaotic situations for its workers. In
one high-tech company we studied, for example, Keystone Kop-
like scenarios played out around the actions of a rogue
marketing function. As described in one engineer's diary, the
attempts of many teams to move forward with their projects
were continually thwarted by signals from marketing that
conflicted with those coming from R&D and other key
functions. Marketers even failed to show up for many key
meetings:
At a meeting with Pierce, Clay, and Joseph, I was told that
someone from marketing would be attending our team meetings
(finally). The meeting also gave me a chance to demonstrate to
Joseph that we were getting mixed signals from marketing.
When coordination and support are absent within an

7. organization, people stop believing that they can produce
something of high quality. This makes it extremely difficult to
maintain a sense of purpose.
Trap 4: Misbegotten 'big, hairy, audacious goals'
Management gurus Jim Collins and Jerry Porras encourage
organizations to develop a "big, hairy, audacious goal" (BHAG,
pronounced bee-hag) -- a bold strategic vision statement that
has powerful emotional appeal.[ 6] BHAGs help infuse work
with meaning by articulating the goals of the organization in a
way that connects emotionally with peoples' values. (Think of
Google's stated mission to "organize the world's information
and make it universally accessible and useful.")
At some companies, however, such statements are grandiose,
containing little relevance or meaning for people in the
trenches. They can be so extreme as to seem unattainable and so
vague as to seem empty. The result is a meaning vacuum.
Cynicism rises and drive plummets. Although we saw this trap
clearly in only one of the seven companies we studied, we think
it is sufficiently seductive and dangerous to warrant
consideration.
That company, a chemicals firm, set a BHAG that all projects
had to be innovative blockbusters that would yield a minimum
of $100 million in revenue annually, within five years of a
project's initiation. This goal did not infuse the work with
meaning, because it had little to do with the day-to-day
activities of people in the organization. It did not articulate
milestones toward the goal; it did not provide for a range of
experiments and outcomes to meet it; worst of all, it did not
connect with anything the employees valued. Most of them
wanted to provide something of value to their customers; an
aggressive revenue target told them only about the value to the
organization, not to the customer. Far from what Collins and
Porras intended, this misbegotten BHAG was helping to destroy
the employees' sense of purpose.
Avoiding the traps
Spotting the traps from the executive suite is difficult enough;

8. sidestepping them is harder still -- and wasn't the focus of our
research. Nonetheless, it's instructive to look at the one
company in our study that avoided the traps, a creator of coated
fabrics for weatherproof clothing and other applications. We
recently interviewed its head, whom we'll call Mark Hamilton.
That conversation generated a few ideas that we hope will spark
a lively discussion in your own C-suite. For example:
· When you communicate with employees, do you provide
strategic clarity that's consistent with your organization's
capabilities and an understanding of where it can add the most
value? Hamilton and his top team believed that innovating in
processes, rather than products, was the key to creating the right
combination of quality and value for customers. So he talked
about process innovation at every all-company meeting, and he
steadfastly supported it throughout the organization. This
consistency helped everyone understand the strategy and even
become jazzed about it.
· Can you keep sight of the individual employee's perspective?
The best executives we studied internalize their early
experiences and use them as reference points for gauging the
signals that their own behavior will send to the troops. "Try
hard to remember when you were working in the trenches,"
Hamilton says. "If somebody asked you to do a bunch of work
on something they hadn't thought through, how meaningful
could it be for you? How committed could you be?"
· Do you have any early-warning systems that indicate when
your view from the top doesn't match the reality on the ground?
Regular audits to gauge the effectiveness of coordination and
support processes in areas such as marketing, sales, and
purchasing can highlight pain points that demand senior
management's attention because they are starting to sap meaning
from your people's work. In Hamilton's view, senior executives
bear the responsibility for identifying and clearing away
systemic impediments that prevent quality work from getting
done.
Hamilton's company was doing very well. But we believe that

9. senior executives can provide a sense of purpose and progress
even in bad economic times. Consider the situation that then-
newly appointed Xerox head Anne Mulcahy faced in 2000, when
the company verged on bankruptcy. Mulcahy refused her
advisers' recommendation to file for bankruptcy (unless all
other options were exhausted) because of the demoralizing
signal it would send to frontline employees. "What we have
going for us," she said, "is that our people believe we are in a
war that we can win."[ 7] She was right, and her conviction
helped carry Xerox through four years of arduous struggle to
later success.
As an executive, you are in a better position than anyone to
identify and articulate the higher purpose of what people do
within your organization. Make that purpose real, support its
achievement through consistent everyday actions, and you will
create the meaning that motivates people toward greatness.
Along the way, you may find greater meaning in your own work
as a leader.
Footnote
[1]Teresa Amabile and Steven Kramer, The Progress Principle:
Using Small Wins to Ignite Joy, Engagement, and Creativity at
Work, Boston, Massachusetts: Harvard Business Review Press,
August 2011.
[2]See Sangeeta Agrawal, James W. Asplund, James K. Harter,
Emily A. Killham, and Frank L. Schmidt, "Causal impact of
employee work perceptions on the bottom line of
organizations," Perspectives on Psychological Science, July
2010, Volume 5, Number 4, pp. 378-89.
[3]See Teresa Amabile and Steven Kramer, "The power of small
wins," Harvard Business Review, May 2011, Volume 89,
Number 5, pp. 70-80.
[4]See Robert Sutton, Good Boss, Bad Boss: How to Be the
Best… and Learn from the Worst, New York: Business Plus,
2010; and Sutton's related article, "Why good bosses tune in to
their people," mckinseyquarterly.com, August 2010.
[5]Lower-level managers were even less likely to recognize the

10. power of progress: only 5 percent of all survey respondents
ranked it first among the five factors we asked about.
[6]See James C. Collins and Jerry I. Porras, "Building your
company's vision," Harvard Business Review,
September/October 1996, Volume 74, Number 5, pp. 65-77.
[7]William W. George and Andrew N. McLean, "Anne Mulcahy:
Leading Xerox through the perfect storm (A)," Harvard
Business School Case 9-405-050, January 2005.
Page 37 of 73
8. Financial Planning
The financial planning below is prepared with the help of the
Profit and loss
(Appendix 6) and balance sheet (Appendix 4 and 5) of Yum! We
based on
Brands, the franchisor of KFC and Pizza Hut, for the financial
year 2013 as a
sample and consideration of our financial planning.
As a franchisor, the company will have to take into
consideration of the financials
of the franchisee. Thus the planning will show 2 sets of
accounts, the franchisee
and the franchisor respectively.

11. All Financials below will be prepared in Singapore dollar as the
company will be
incorporated in Singapore and tax rate will follow the Singapore
tax rate of 17%.
8.1 Projected Profit and loss statement for the financial year
2015 to 2017
The company will first set up the profit and loss showing the
budgeted revenue
and estimated expenses that will incur in the cause of doing
business.
Page 38 of 73
Figure 10: Projected profit and loss of one franchisee
2015 2016 2017
Please refer to the
Assumption table
(figure 7)
Revenues S$ S$ S$
Resturant Sales 102,200 255,500 383,250 1
Cost of sales
Purchase of ingredients 30,660 76,650

12. 114,975 2
Importing and freight cost 20,440 51,100
76,650 3
Packaging and others 5,110 12,775 19,163
4
Service staff cost 76,650 76,650 76,650 5
Total cost of sales 132,860 217,175 287,438
Operating profit ‐30,660 38,325 95,813
Gross profit margin ‐30% 15% 25%
Adminstrative Expenses
Bank charges 50 50 50 6
Depreciation of equipments 50,000 50,000
50,000 7
Printing and stationery 300 315
331 8
Rental of resturant 60,000 60,000 60,000 9
Travelling expenses 500 550
605 10
Professional fee
Accounting fee 4,000 4,800 5,760 11
Audit fee 2,000 2,400 2,400 12
Secretarial fee 600 600 600 13
Tax agent fee 800 800 800 14
Franchisee Fee
One time franchisee fee 25,000 ‐
‐ 15
Royalties fee ‐ 2,683 6,707 15
Advertisement fee 5,110 12,775 19,163 15
Total expense 148,360 134,973 146,415

13. Net profit / loss before tax ‐179,020 ‐96,648
‐50,603
Tax at 17% ‐ ‐ ‐
Net profit / loss ‐179,020 ‐96,648 ‐50,603
Page 39 of 73
As seen from figure 6, the franchisee is making losses in the
first 3 years,
mainly due to the high cost of sales, thus providing insufficient
profit to cover
up the expenses incurred, especially the high fixed cost of
rental.
Number Description Assumptions
1 Restaurant
sales
The sales are based on an average of S$7 each
considering (Figure 9).
The estimated average number of customers per
day for

14. 2015 – 40 customers
2016 – 100 customers
2017 – 150 customers
2 Purchase of
ingredients
The cost is based on 30% of the revenue.
3 Importing and
freight cost
To maintain the high quality of the restaurant food,
the ingredients are imported from various countries
around the world (Shanghai, Malaysia and New
Zealand). Thus the company expects the high cost
of around 20% of revenue.
4
Packaging and
others
The packaging and others that come with the meal
will roughly make up about 5% of the revenue.

15. 5 Service staff
cost
The restaurant will need about 5 part time staff at
each point of time to handle the customers. Each
part time staff will be paid a rate of $3 per hour
(due to the lower salary in Bangkok). Average
Page 40 of 73
opening hour of 14 hours per day.
6 Bank charges Annual bank charges for current account will be
assumed at $50 per year.
7 Depreciation of
equipment
Depreciation is set at 3 years
8 Printing and
stationery
Printing and stationary incurred for administrative

16. staff is set at S$300 and increase at 5% per year
as business increases.
9 Rental of
restaurant
As the restaurant needs large space, the company
will expect a rental cost of S$5000 per month.
10 Travelling
expenses
Travelling expenses for business purpose set at
S$500 and increase at 10% per year as business
increases.
11
Accounting fee The company will suggest the franchisee to
outsource the accounting records to save cost.
The cost is initially set at $4000 per year as
restaurant usually incurred high transaction
volumes and increased by 20% per year due to the
high increase in transaction volume.

17. 12 Audit fee The cost is initially set at $2000 per year as
restaurant usually incurred high transaction
volumes and increased by 20% per year due to the
high increase in transaction volume.
13 Secretarial fee Maintain at the fee set by the Secretarial
company
14 Tax agent fee Maintain at the fee set by the tax agent
Page 41 of 73
15
Franchise Fee
and
Advertisement
fee
Refer to figure 7
Figure 11: Assumption table for projected profit and loss of one
franchisee

18. Page 42 of 73
Figure 12: Projected profit and loss of franchisor
As shown in figure 12, the company as the franchisor will be
gaining high
profits in the three years due to low cost incurred in the
business operation.
The increase will be fast in the first and second year and the
growth will slowly
decrease after the third year as the business becoming
stabilized.
2015 2016 2017

19. Please refer to the
Assumption table
(figure 9)
Revenues S$ S$ S$
One time franchisee fee 75,000 175,000
125,000 1
Royalties fee ‐ 26,828 100,603 2
Total revenue 75,000 201,828 225,603
Cost of service
Training of franchisee 6000 14000 10000 3
Operating profit 69,000 187,828 215,603
Gross profit margin 92% 93% 96%
Adminstrative Expenses
Bank charges 50 50 50
4
Depreciation of equipments 1000 1000 1000 5
Printing and stationery 700 980 1372 6
Rental of accommodation and office 1500 1500 1500 7
Travelling expenses 2000 2600 3380 8
Overseas travelling expense 500 500 500 9
Professional fee
Audit fee 3000 3600 4320 10
Secretarial fee 600 600 600 11
Tax agent fee 1000 1000 1000 12
Advertisement fee ‐ ‐
‐ 13
Total expense 10,350 11,830 13,722

20. Net profit / loss before tax 58,650 175,998
201,881
Tax at 17% 9,971 29,920 34,320
Net profit / loss 48,680 146,078 167,561
Page 43 of 73
Number Description Assumptions
1 One time
franchise fee
Number of franchisee increase in the year (Figure
6) multiplied by the Franchisee Fee, S$25,000
(figure 7)
2 Royalty fee
Target number of Franchisee stores in Bangkok
(Figure 6) multiple by the royalty fee per franchisee
(Figure 10)
3 Training of
franchisee

21. The training cost of per Franchisee will be set at
S$2000.
4 Bank charges Annual bank charges for current account will be
assumed at $50 per year.
5 Depreciation of
equipment
Depreciation is set at 3 years
6 Printing and
stationery
Printing and stationary incurred for administrative
staff is set at S$700 and increase at 40% per year
due to the increase in administrative work as the
number of franchisee increase.
7 Rental of
accommodation
and office
The Company will send one representative to
Bangkok to liaise with the franchisee and

22. coordinate with the suppliers. The company will
rent a house for use as the home and the office.
8 Travelling
expenses
Travelling expenses for business purpose set at
S$2000 and increase at 30% per year as the
number of franchisee increase.
The expenses are incurred mainly for the travelling
Page 44 of 73
to the stores for business purpose and inspection.
9
Overseas
travelling
expense
Overseas travelling expense will be the year air

23. ticket to travel back to Singapore to report on the
status and home visits.
10 Audit fee The cost is initially set at $3000 per year as the
audit needs to take into account of all the
franchisor sales report.
11 Secretarial fee Maintain at the fee set by the Secretary
company
12 Tax agent fee Maintain at the fee set by the tax agent
13
Advertisement
fee
Target number of Franchisee stores in Bangkok
(Figure 6) multiplied by the advertisement fee per
franchisee (Figure 10). But as the amount received
is totally used for advertising, no amount is shown
in the Profit and loss.
Figure 13: Assumption table for projected profit and loss of
franchisor

24. Page 45 of 73
8.2 Projected balance sheet for the financial year 2015 to 2017
In order to understand the status of the franchisee and
franchisor, we need to
understand the profitability of the business.
Figure 14: Projected balance sheet of one franchisee
As seen from figure 10, the franchisee is in heavy debt from the
directors, as
the directors provide all the funding to start the business. In this
way the
company can see the financial ability of the franchisee as its
business partner
and this type of funding also avoid incurring high interest cost
each year from
taking loans from banks. The figure also shows that the
franchisee liabilities

25. are increasing while the assets are decreasing over the years,
causing the
franchisee to be in a net liability position.
2015 2016 2017
Please refer to the
Assumption table
(figure 11)
Non‐current assets
Plant and equipment 100,000 50,000 ‐ 1
Current assets
Cash and cash equivalents 21,979 ‐3,870 15,121
Deposits 5,000 5,000 5,000 3
Inventories 4,000 5,200 6,760 4
Prepayments 2,000 2,600 3,380 5
Total assets 132,979 58,930 30,261
Current liabilities
Trade payable 4,599 11,498 17,246 6
Accrued expenses 7,400 8,600 9,560 7
Amount due to directors 290,000 304,500 319,725 8
Total liabilities 301,999 324,598 346,531
Shareholder Equity
Share capital 10,000 10,000 10,000 9
Retained earnings ‐179,020 ‐275,668 ‐326,270 10
Total shareholder equity ‐169,020 ‐265,668 ‐316,270
Total liabilty and shareholder equity 132,979 58,930
30,261

26. Page 46 of 73
Number Description Assumptions
1 Plant and
equipment
The company expects the initial investment in plant
and equipment (cooking equipment, furniture,
machines and others) to be around S$150, 000
and the assets are expected to work for more than
three years.
2 Deposits Deposit relates mainly to the deposit on a rental
(One month).
3 Inventories
Inventories are maintained at minimum stock level
of S$4000 and increase by 30% each year as
sales increase.
4 Prepayments The prepayment is estimated at S$2000 for the

27. down payment of purchase of ingredients to
maintain minimum stock. The amount increase by
30% each year due to the increase in sales.
5 Trade payable
Trade payable is estimated at 15% of the cost of
ingredients in figure 10.
6 Accrued
expenses
Accrued expenses relate to the accrual of the
professional fee in figure 10.
7 Amount due to
directors
The amount due to director relate to the initial
funding from the director S$290,000. Due to the
loss made in the first three years, the director has
to provide additional funding at 5% per year.
8 Share capital Initial share capital of S$10,000.

28. Page 47 of 73
9 Retained
earnings
The sum of the profit and loss after tax in figure 6.
Figure 15: Assumption table for projected balance sheet of one
franchisee
Figure 16: Projected balance sheet of franchisor
On the other side, as the franchisor, the Company is making
profit in all the
three years and each year the company is able to give dividends
to its
shareholders. As shown in the figure 12, the asset outweighs the
liability,
giving the net asset position.
2015 2016 2017
Please refer to the

29. Assumption table
(figure 13)
Non‐current assets
Plant and equipmets 2,000 1,000 ‐
1
Current assets
Cash and cash equivalents 25,705 50,906
69,151
Deposits 1,500 1,500 1,500 2
Total assets 29,205 53,406 70,651
Current liabilities
Accrued expenses 4,600 5,200 5,920 3
Amount due to directors 10,000 ‐
‐ 4
Total liabilities 14,600 5,200 5,920
Shareholder Equity
Share capital 1 1 1 5
Retained earnings 48,680 160,682 215,766 6
Dividends paid ‐34,076 ‐112,477 ‐151,036 7
Total shareholder equity 14,605 48,206
64,731
Total liabilty and shareholder equity 29,205 53,406
70,651
Page 48 of 73
Number Description Assumptions

30. 1 Plant and
equipment
The company expects the initial investment in plant
and equipment (Computer, printer and scanner) to
be around S$3,000 and the assets are expected to
work for more than three years.
2 Deposits Deposit relates mainly to the deposit on rental
(One month).
3 Accrued
expenses
Accrued expenses relate to the accrual of the
professional fee in figure 8.
4 Amount due to
directors
The amount due to director relates to the initial
funding from the director S$10,000. Due to the
profits made in the first three years, the director

31. shall receive back the payment within second
years.
5 Share capital
Initial share capital of S$1.
6 Retained
earnings
The sum of the profit and loss after tax in figure 8.
7 Dividends paid
in the year
As the company is making a profit and there is not
much expense or investment needed, 70% of the
retained earnings as at year end will be given to
the shareholders as dividends.
Figure 17: Assumption table for projected balance sheet of
franchisor
Page 49 of 73

32. 8.3 Cash flow
As seen from the figure 14, the franchisee has a weak cash
position. The cash is
basically being funded by the directors. Due to the large loss,
the franchise had
not made any real profits for the three years, especially during
the second year
when the franchisee incurred a negative cash flow. Thus the
company can
understand that the franchisee is in a very unstable position
with limited cash flow
in hand at its deposal.
While the Company on the other hand have been making so
much profit with
relatively little expenses, thus as show in figure 16, the
disposable cash on hand
had been increasing and is much more than what the Company
is able to use.
Thus the Company as the franchisor face no problem in its cash
flow.
8.4 Break even analysis
Unfortunately, the franchisee is unable to break even in the
three years due to

33. high cost (show in figure 10). The franchisee continues to make
losses and in
those three years the losses and liability had accumulated to a
large amount
making it very difficult for the shareholders to gain back its
investment.
As for the Company, revenue had largely exceeded the cost and
it will break
even in the first year also gaining back shareholder’s
investments (Show in figure
12).
Financial Planning for POKKA SAPPORO Food & Beverage
Ltd joint venture in Thailand
1.1 Cost analysis/Break-even analysis/funding/cash
flow (choose 2, calculation based on realistic assumption)
1.2 Projected Profit and Loss statement & Balance
Sheet for year 2015 to 2017 (Profit please)
1.3 Other financial statements/data
Identify 2 possible challenges and 2 solution to counter the
challenges.
At least 6-10 references.APA referencing.
Not more than 2000 words.

34. Additional info:
Pokka is a beverage company in Singapore (something like
Coca-cola).
Per bottle/can of drink should be around US $0.80.
Sample assignment is about setting up resturant in other country
therefore not applicable to this.
Sample assignment is for formatting/layout reference.