Planning and implementing

• Overall


  The financial planning process begins with long-term or strategic plans

  They cover 2 - 10 years and guide the development of short-tactical and operational plans

  Short-term plans are more specific and cover plans and budgets for periods of one to two years or one year or less

  Planning process involves the setting of goals and objectives, determining the strategies to achieve those goals and objectives, identifying and evaluating alternate course of actions and choosing the best alternative for the business
• Financial needs

  The financial needs are different for each organisation and are categorised by size, life cycle, future plans and capacity to source finance

  This financial information includes balance sheets, cash flow statements, sales and price forecasts, budgets, bank statements, weekly reports form departments, break-even analysis, reports from financial ratio analysis and interpretation

  Financial statements and budgets help indicate size and life cycle, business development plans show future plans and capacity to source finance is shown in bank statements
• Budgets


  Budgets provide information about requirements to achieve a particular purpose

  Budgets illustrate how financial resources will be used to achieve a business’ objectives

  Budgets can be drawn up to show:

  • Cash required for planned outlays for a particular period
  • The cost of capital expenditure and associated expenses against earning capacity
  • Estimated use and cost of raw materials or inventory

  Enable constant monitoring of objectives, and provide the facts and figures for planning and decision making, and enable constant monitoring of progress and problem areas
• Types of budgets


  Operating --> Relate to the main activities of a business and may include budgets relating to sales production, expense, raw materials and labour hours.

  Financial --> Relate to the financial data of a business. The predictions of the operating and project budgets are included in the budgeted financial statements.

  Project --> Relate to capital expenditure, and research and development. Capital expenditure budgets in a business’ strategic plan include information about the purpose of the asset purchase, lifespan of the asset and the revenue generated.
• Record systems


  Record systems are the mechanisms employed by a business to ensure that data are recorded and the information provided by record systems is accurate, reliable, efficient and accessible

  Minimising errors in the recording process, and producing accurate and reliable financial statements are important aspects of maintaining record systems

  The ATO requires business to keep records for a minimum 5 years → if not, can face severe penalties
• Financial risks


  Financial risk is the risk to a business of being unable to cover its financial obligations, such as the debts that a business incurs through borrowings, both short term and longer term. If the business is unable to meet its financial obligations, bankruptcy will result

  In assessing the risk for a business, consideration must be given to:

  The amount of the business’ borrowings

  When borrowing are due to be repaid

  Interest rates

  The required level of current assets needed to finance operations
• Financial risks - risks


  If the business is financed from borrowings there is higher risk. The higher the risk, the greater the expectations of profits or dividends. To minimise the financial risk, business must consider the amount of profit that will be generated. The profit must be sufficient to cover the cost of debt as well as increasing profits to justify the amount of risk taken by owners and shareholders

  Potential risks include theft, fraud, damage to assets, loss of assets, error in record systems
• Financial controls


  Reducing financial risk

  Financial problems can be caused by both management and employees. Financial controls ensure that the plans that have been determined will lead to the achievement of the business’ goals in the most efficient way

  Budgets are financial controls used in businesses as they assist a business to estimate resource requirements for a specified future period to predict what will be achieved by a business. For example, preparing a cash budget enables a business to predict cash shortages

  Important when managing current assets