Long Term Financial Plans

8 Key excerpts on "Long Term Financial Plans"

• 

  eBook - ePub

  Financial Aspects of Marketing

  • Keith Ward(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Planning consists of deciding what to do and how to do it, and involves reallocating resources and removing constraints. Planning is, therefore, decision-based.

  It forces the business to set itself objectives which define what it is trying to do and then to establish strategies and tactics to achieve these objectives. Financial analysis is fundamental to ensuring that the objectives are practical and attainable and that the most appropriate strategy is adopted. This requires the business to choose among alternatives and the best way to do this is to evaluate the opportunity cost of the alternatives.

  Financial decision-making only involves future costs and benefits, and any ‘sunk’ costs can be ignored, which makes the decision more dependent on managerial judgement regarding these future costs and benefits.

  Most businesses face a conflict between short-term benefits and long-term objectives of the business, and the planning process must take account of this. Many companies try to resolve this by integrating the short-term planning process (the budget) within the long-range corporate plan so that the two share the same overall objectives.

  We now examine these aspects of planning in detail in Chapters 7 and 8 , before considering the financing requirements of the future plans in Chapter 9 .

  Passage contains an image   7  

  Long-term planning

  Introduction

  Once the business has agreed its mission statement, the long-term planning process must set out how the mission is to be fulfilled. In the long term it is possible for a company to plan to change existing allocations of resources and to remove current constraints, such as lack of access to distribution channels, on the business even if such changes will take time to achieve. This is the most fundamental difference between long-term (strategic) planning and short-term (tactical) budgeting. In a plan for the next 12 months it will be impossible to make fundamental changes to many aspects of marketing strategy as the time needed to effect changes (the lead time) is greater than the 12-month planning period. If the corporate objective for growth can only be attained by launching new products, the level of this growth will be constrained by the time-scale of product developments and this may preclude any significant new product launches in the next 12 months. For longer-term plans, the company could increase the resources dedicated to product development so that these time-scales may be reduced, or it could examine the potential for buying in new products from other companies, etc. as ways of removing the constraint to growth.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Using Accounting & Financial Information

  • Mark S. Bettner(Author)
  • 2018(Publication Date)
  • Business Expert Press

    (Publisher)

  Managers and other internal decision makers rely heavily upon long-term forecasts. Long-term projections are instrumental when planning investing activities, such as those related to fixed asset growth, equipment replacements, and capital leasing arrangements. They enable managers to budget for changes in technology, plan for product line diversification, and orchestrate mergers with—or acquisitions of—other companies. Long-term financial forecasts also assist managers as they grapple with complex workforce decisions, including pension fund structuring, early retirement incentives, downsizing, and the possibility of offshore manufacturing. Moreover, they are used to plan for, and to analyze, a variety of long-term financing decisions, such as the timing of an initial public offering, the issuance of bonds, or the refinancing of a mortgage.

  External stakeholders also engage in long-term financial forecasting. Investors are keenly interested in the timing, amounts, and uncertainties about a corporation’s future dividend activity. Long-term dividend projections—in conjunction with various other forecasted data—are used to discern whether the current price of a company’s stock is realistic and to make informed predictions about its future growth potential. Creditors also engage in long-term financial forecasting to predict anticipated changes in a company’s capital structure, assess a borrower’s debt servicing potential, analyze probabilities of default, and negotiate troubled debt restructuring arrangements.

  Long-term financial forecasts typically do not focus upon detailed operating activities such as accounts receivable collection schedules, raw materials acquisition plans, weekly production level targets, or other issues related to working capital management. These are short-term forecasting concerns that will be addressed in Chapter 6

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  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

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Financial Management for Nonprofit Organizations

  Policies and Practices

  • John Zietlow, Jo Ann Hankin, Alan Seidner, Tim O'Brien(Authors)
  • 2018(Publication Date)
  • Wiley

    (Publisher)

  Financial managers have primary responsibility for the budget process, with approval authority resting with the board. Our concern here is to ensure that programming decisions are translated into budget line items. (Chapter 8 is dedicated largely to budgeting.) Ideally, as each year progresses, use last year's strategic and long-range financial plan to be the starting point not only for the new strategic and long-range financial plan, but also for the development of next year's operating and capital budget. Consider it a warning signal when the long-range financial plan is not used to help develop budgets. Possibly the plan is too inaccurate, or the organization is unaware of the tie between programming and budgeting. Obviously, those organizations updating long-range plans less frequently than yearly have less direct correspondence between plans and budgets. Plans are most likely to be implemented when they drive the resource allocation embodied in the annual operating and capital budgets. Finally, the process of planning is invaluable, forcing discussion and resolution of the trade-offs and prioritization involved in spending decisions. 9.4 CAPITAL BUDGETING: FINANCIAL EVALUATION OF PROJECTS THAT ARISE FROM EXISTING PROGRAMS Programs spawn projects, and these projects often involve large capital allocations with multiyear cash flow effects. These will affect your organization's target liquidity level for years to come. Consequently, the next key question when evaluating a capital project is: Will the capital expenditure cover all of its costs and provide an adequate return on invested capital? This is a pivotal question for evaluating capital expenditures that bring in revenues as well as for selecting between alternative expenditures that involve only costs. Even donative nonprofit organizations may have to consider both capital expenditure types. Any expenditures bringing in multiyear cash revenues should be evaluated in the way we show next

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Entrepreneurial Finance for MSMEs

  A Managerial Approach for Developing Markets

  • Joshua Yindenaba Abor(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  When this happens, the internally generated funds (cash flows) are usually not sufficient to cater for the financial needs of the firm. 9.8 Summary and Conclusions In this chapter, we examined the concept of financial planning and forecast- ing. Financial planning deals with the orderly acquisition of capital, as well as the utilisation of the capital, through the establishment of well-crafted plans directed towards such goals. It entails identifying the sources of funds and the application of the funds in relation to enhancing the financial future of the firm. The financial planning process involves setting enterprise goals, developing long-term financial plans, developing short-term financial plans, developing individual budgets and developing a consolidated budget. A budget is a finan- cial plan that sets out expected future results expressed in monetary terms, usually for a limited period. Forecasting sales is central to financial forecasting in every business, includ- ing MSMEs. At the minimum, the sales forecast should reflect any past trends in sales that are expected to carry through into the planned period and the influence of any events that might materially affect those trends. Sales fore- casts are usually used as a link between product-market performance and the financial needs of the firm. The level of forecasted sales therefore serves as a barometer for making future predictions as to the cash flows from operations that are expected to be available for future use. The expected external financ- ing needs of a firm can be derived from the estimates of the productivity of assets, which is measured in terms of the firm’s ability to support its sales. Financial forecasting is an essential tool used in assessing the financial needs of firms. The determinants of the financing needs of a business venture include profitability, cash flow, minimum efficient scale and sales growth.

  Sign up to read

  Learn more about book
• 

  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.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  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.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  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.

  Sign up to read

  Learn more about book