Financial Planning

10 Key excerpts on "Financial Planning"

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  eBook - ePub

  Enterprise Planning and Development

  • David Butler(Author)
  • 2006(Publication Date)
  • Routledge

    (Publisher)

  Planning and Managing the Business Finances

  DOI: 10.4324/9780080462851-10

  Financial Planning

  Financial Planning is a fairly generic term which covers a range of different activities, from the initial estimating of resource requirements and associated costs, forecasting sales revenue, identifying on-going operating costs, and preparing the budgetary plans which combine the former information. It also involves cash-flow forecasting to ensure that there are no gaps between income and expenditure, analysing break-even levels, and forecasting profits.

  It is because the process draws together all of the other aspects of planning the business, and then expressing those plans in monetary form, that it is so important to prepare correctly, as it is the primary point of interest for bankers and any other potential lenders or investors, and is usually the first thing they will focus on when reading a business plan. If the financial forecasts do not look to be sufficiently detailed or realistic then it is highly likely that the business plan will be rejected or at least referred back for more information.

  The objective of this chapter is to describe the various processes involved, and the reasoning behind them, so that the reader is in a position to prepare the necessary information for his or her own business plan, in particular the budgetary plan, cash-flow forecasts, and break-even analysis. As part of the process we shall also be defining and explaining some of the financial terminology which it is essential for the owner-manager to understand.

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  Essentials of Corporate Finance

  • Robert Parrino, David S. Kidwell, Thomas Bates(Authors)
  • 2013(Publication Date)
  • Wiley

    (Publisher)

  1 The Planning Documents When top management begins to prepare a company’s financial plan, it must answer four basic questions. First, where is the company headed? Second, what assets does it need to get there? LEARNING OBJECTIVE 1 1 Ronco’s founder, Ron Popeil, became a minor household celebrity hawking the firm’s products on late-night television. Financial Planning the process by which management decides what types of investments the firm needs to make and how to finance those investments financial plan a plan outlining the investments a firm intends to make and how it will finance them It is often said that a company that fails to plan for the future may have no future. In the short run, a firm may do well being opportunistic—reacting quickly to events as they unfold. To succeed over the long term, however, a firm must be innovative and must plan and employ a strategy that generates sustain- able profits. Top executives spend a lot of time thinking about the types of investments the firm needs to make and how to finance them. The process that executives go through is called Financial Planning, and the result is called a financial plan. This chapter focuses on long-term Financial Planning. We begin with a discussion of the firm’s strategic plan and its components. We then discuss the preparation of a finan- cial plan. Next, we turn our attention to Financial Planning models used in the preparation of financial plans. These models generate projected financial statements that esti- mate the amount of external funding needed and identify other financial consequences of proposed strategic invest- ments. We end the chapter by examining the relation be- tween a firm’s growth and its need for external funding. Managing growth is an important topic, because growth without sufficient profits can lead to cash flow shortages and bankruptcy. CHAPTER PREVIEW

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  Event Project Management

  Principles, technology and innovation

  • Mohamed Salama(Author)
  • 2021(Publication Date)
  • Goodfellow Publishers

    (Publisher)

  112 Event Project Management capital management options. Therefore, a firm that experiences increased revenue may be forced to revamp its capital management system. Since suitable financing leads to better income in the long run, adjustments in the capital management signal achievement of the socio-environmental goals. The Financial Planning process Financial Planning is process of framing objectives, policies, procedures, programs and budgets regarding the financial activities of a business. Financial Planning is about deciding in advance, the financial activities to be carried on to achieve the basic objective of the firm. The economic or financial wellbeing of an event management company is a state wherein the company not only fully meets the ongoing and current obligations but also feels secure in its financial future. This involves three basic elements: 1 Having the capacity to absorb any financial shock. 2 Having full control over its finances. 3 Bering on the right path to achieve financial goals. Financial Planning ensures the timely availability of funds, i.e. the com-pany neither should face shortage nor have excess funds. It helps in main-taining a reasonable balance between outflow and inflow of funds so that stability is ensured, and helps in growth and expansion programmes, which helps in long-term survival of the company, thus, reducing the uncertain-ties which can become a hindrance to the growth of the company. It has been observed that companies with higher financial well-being will experi-ence less volatility during market turmoil and economic fluctuations, and are more motivated in financial activities. Management accounting Management accounting is a branch of accounting that help managers in the preparation of reports about the operations of the business and helps them to make long- and short-term decisions.

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  Start-Up Guide for the Technopreneur

  Financial Planning, Decision Making, and Negotiating from Incubation to Exit

  • David Shelters(Author)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  Chapter 4

  Financial Planning for Maximizing Returns

  Having a financial strategy and a plan to execute it based on the fundraising stages is mandatory for every entrepreneurial venture seriously interested in achieving a successful exit. Too often I witness start-ups with elaborate, well-thought-out plans on how to develop, produce, market, and service their product through commercial launch and beyond. However, they fully intend to proceed without formulating some form of financial strategy or plan. Financial Planning, at least on a preliminary level, is necessary initially to determine whether you have a potential viable business. Conducting effective business planning requires an informed understanding of what is and is not financially feasible in regard to your venture. To execute your business plans requires money. Without securing sufficient funds on acceptable terms and in a timely manner, every other focus of your business efforts is moot. A financial plan serves as a basis to calculate an acceptable return on investment (ROI) and determine a successful exit strategy. A financial plan with well-defined financial objectives is a must.

  This chapter begins with a descriptive listing of the various benefits of formulating a financial strategy and plan for your business. Then we focus on thinking strategically in devising a financial plan, including an illustrative analogy. We then turn to the areas serving as a basis for establishing financial objectives. We introduce FREEs—fundraising effectiveness and efficiencies—on both macro and micro levels and the conceptual methods of FREE measurements before we proceed to examine the construction of an effective financial plan. The chapter concludes with some rules of thumb regarding Financial Planning.

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  PFIN

  • Randall Billingsley, Lawrence Gitman, Michael Joehnk, , Randall Billingsley, Lawrence Gitman, Michael Joehnk(Authors)
  • 2019(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  Moreover, the financial crisis of 2007–2008 dramatizes the need to plan for financial contingencies. No matter how you define it, the good life requires sound planning to turn financial goals into reality. The best way to achieve financial objectives is through personal Financial Planning, which helps de-fine your financial goals and develop appropriate strat-egies to reach them. And being financially self-aware provides more insight into the range of available fi-nancial choices and their trade-offs. Your comfortable retirement should not depend solely on employee or government benefits—such as steady salary increases or adequate funding from employer-paid pensions or Social Security. Creating flexible plans and regularly revising them is the key to building a sound financial future. Successful Financial Planning also brings rewards that include greater flexibility, an improved standard of living, wiser spending habits, and increased wealth. Of course, planning alone does not guarantee success; but having an effective, consistent plan can help you use your resources wisely. Careful Financial Planning in-creases the chance your financial goals will be achieved and that you will have sufficient flexibility to handle such contingencies as illness, job loss, and even finan-cial crises. The goal of this book is to remove the mystery from the personal Financial Planning process and replace it with the tools you need to take charge of your personal finances. To organize this process, the text is divided into six parts, as follows: ▶ Part 1: Foundations of Financial Planning ▶ Part 2: Managing Basic Assets ▶ Part 3: Managing Credit ▶ Part 4: Managing Insurance Needs ▶ Part 5: Managing Investments ▶ Part 6: Retirement and Estate Planning Each part explains a different aspect of personal finan-cial planning, as shown in Exhibit 1.1. This organizational HOW WILL THIS AFFECT ME? The heart of Financial Planning is making sure your values line up with how you spend and save.

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  Fundamentals of Corporate Finance

  • Robert Parrino, David S. Kidwell, Thomas Bates(Authors)
  • 2016(Publication Date)
  • Wiley

    (Publisher)

  We will consider why this is the case. As we discussed in Chapter 1, an appropriate goal for management is maximising the market value of shareholders’ equity. If management invests in productive assets with positive NPVs, finances them at the lowest possible cost and skilfully manages these assets, the company should be profitable and grow in size. This growth results from making sound business decisions and executing strategies that create sustainable competitive advantages over the long term. In other words, asset growth results from managing a profitable business. Thus, growth is an accept-able goal as long as it is anchored by a sound business strategy that will generate an increase in profitability. Before You Go On 1. What two factors determine the amount of E FN? 2. What is IGR , and why is it of interest to management? 3. If a firm continually exceeds its SGR, what problems may it face in the future? as the investment and financing plans. The financial plan focuses on selecting the best investment opportunities and determining how they will be financed. The financial plan is a blueprint for the firm’s future. Financial Planning is important S U M M A R Y O F L E A R N I N G O B J E C T I V E S 1. Explain what a financial plan is and why financial plan-ning is so important. A financial plan is a set of actionable goals derived from the firm’s strategic plan and other planning documents, such 663 Summary of Key Equations to management because the plan communicates the firm’s strategic goals throughout the organisation, builds support for the firm’s strategies and helps align operating units with the firm’s strategic goals. 2. Discuss how management uses Financial Planning mod-els in the planning process, and explain the importance of sales forecasts in the construction of Financial Planning models. Financial models are the analytical part of the Financial Planning process.

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  Strategic Business Planning for Accountants

  Methods, Tools and Case Studies

  • Dimitris N. Chorafas(Author)
  • 2006(Publication Date)
  • CIMA Publishing

    (Publisher)

  6 Planning 144 This page intentionally left blank Strategic Business Planning for Accountants 145 1. Introduction According to Simone de Beauvoir, the French author, a woman is not born, but made . The same is true about men, and evidently about companies, countries, and any other entity. But ‘to be made’ one needs a plan that establishes objectives and provides the means for coordinating decisions and actions. Planning is the process of deciding what action should be taken in the future. The area covered by a plan may be a small segment of the entity and its opera-tions, or it may be the whole enterprise. The decision as to whether the price of one product should be increased by, say, 3% is a plan; and so is a decision to merge the company with another firm (see Part 6 on M&As). Planning, as we know it, grew out of the ‘Gantt chart’ originally designed in 1917 to plan war production. Slowly planning became sophisticated, using statistics and analytical tools, as well as employing the advantages provided by quantification to convert experience and intuition into: Definitions Information, and Diagnosis. The plan is a framework involving different types of resources: human, financial, and material. Also time, as time is a key resource. The first essential characteris-tic of a plan is that it involves decision(s) about action to be taken in the future. Planning should therefore be distinguished from forecasting , which is an esti-mate of possible evolution. But as Chapter 5 explained, forecasting is prerequi-site to planning. Another essential characteristic of a plan is the experience required in making it and in putting it into effect. On his visit to ancient Egypt, Solon (640–560 BC ), the Athenian lawmaker, was received by an old priest to whom he spoke with pride about his country of origin. The host interrupted him: ‘You Greeks are like kids. There are no old people in Greece …’ ‘What do you mean?’ asked Solon.

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  Financial Planning and Management in Public Organizations

  • Alan W. Steiss, Emeka O. Nwagwu, Alan W. Steiss, Emeka O. Nwagwu(Authors)
  • 2001(Publication Date)
  • Routledge

    (Publisher)

  5 Analytical Techniques for Financial Planning and Management The common denominator among the various resources of any organization is the cost involved in their utilization. Therefore, the focus of management is usu­ ally on the most effective deployment of fiscal resources. The consequences of past decisions form the basis for much of the financial and cost analysis in com­ plex organizations. Financial Planning and management, however, demand ana­ lytical techniques that can accommodate the risk and uncertainty inevitably associated with future decisions. 1 TRENDS IN LOCAL GOVERNMENT FINANCE The impetus for sound Financial Planning and cost control in public organizations arises from a number of factors, including a significant decline in federal assis­ tance, the growing impact of fiscal restrictions and increasing public demand for accountability, and the difficulties of marketing bonds amidst a highly volatile en­ vironment for investments. The financial difficulties of New York City (1975) and Cleveland, Ohio (1979) thrust financial management into public discourse. How­ ever, more recent events, such as the severe fiscal problems of Philadelphia (1991), Bridgeport, Connecticut (1992), and Washington, D.C. (1995), and the bankruptcy of Orange County, California (1995), have shaken public confidence in the ability of local governments to manage their fiscal resources. As a result, 125 126 Chapter 5 the financial functions of public institutions have undergone significant, and per­ haps permanent, changes.

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  Accounting All-in-One For Dummies (+ Videos and Quizzes Online)

  • Michael Taillard, Joseph Kraynak, Kenneth W. Boyd(Authors)
  • 2022(Publication Date)
  • For Dummies

    (Publisher)

  It’s a summary of your financial and operating plans: » The financial plan (financial statements, really) is what you share with outside parties that need your budgeted information, including lenders, stockholders, and perhaps even regulatory agencies. » The operating plan (also known as the operating budget) is used internally, mostly by managers, to set sales goals and develop internal budgets. You hand the operating plan to your managers, and the managers implement the plan. Operating plans can contain nonfinancial information. Decisions about produc- tion, hiring, and selling efforts are components of operating plans. Understanding key budgeting concepts Budgeting forces you to plan how to use your assets wisely to generate revenue. (Assets are resources, including cash, buildings, machinery, office equipment, and anything else your businesses uses to conduct business.) As you develop your budget, keep the following key concepts in mind: » Depreciation: Long-term assets, such as trucks and machinery, depreciate; that is, they wear out and are worth a little less every day as you use them up. You need to budget for operating costs and depreciation so that you have CHAPTER 4 Budgeting for a Better Bottom Line 391 Budgeting for a Better Bottom Line sufficient cash to replace these assets when they’re used up or no longer useful. » Opportunity cost: When you use an asset to manufacture product A, you give up the opportunity to use that asset to produce product B, which would have generated revenue too. When developing a budget, consider opportu- nity cost, and make choices on how to use assets that minimize these costs. » Cash flow: When you conduct business, cash flows through your business, coming in as revenue and going out as expenses. One of your primary goals in developing a budget is making sure that you have at least as much cash flowing in as you do flowing out.

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  Business Planning for New Ventures

  A guide for start-ups and new innovations

  • David Butler(Author)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  8

  Planning and managing business finances

       

  Outcomes and objectives

  By the end of this chapter the reader will understand the following aspects of business finance:

  ● The range of financial information expected by lenders and investors to enable them to make a decision about providing funding (e.g. budgetary plans, cash flow forecasts, profit forecasts).

  ● The main documents used in small business accounting - double-entry bookkeeping, trading accounts, Profit and Loss Accounts, and Balance Sheets.

  ● The importance of accurate and detailed costing in the business plan.

  ● Budgetary planning and financial control: how to formulate a detailed budgetary plan, cash flow forecast and profit forecast for start-up using sales forecasts generated from market research.

  ● The process of managing working capital and cash flow, and ensuring effective credit control to ensure liquidity and to keep the business solvent.

  ● Pricing and the difference between mark-up and profit margins.

  ● Break-even analysis as an essential tool for the survival of the new business.

  ● The importance of effective monitoring of revenue and expenditure outcomes against budgetary targets.

  ● Potential sources of finance or investment for start-ups.

  Financial information required by lenders and investors

  In Chapter 2 we examined the expectations of potential lenders and investors when they are evaluating a business proposal for a new venture, but although these two groups have very different perspectives and decision-making criteria the financial information they expect is quite similar, and without strong and realistic financial projections any application for funding is likely to be rejected. Lenders and investors will expect the proposals to include the following financial documents:

  ●

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