Financial Planning process

Question 1

is very much related to another management function, controlling. These two management functions reinforce each other, and both are very important for the success of an organization.

Answer 1

Planning

Question 2

is about setting the goals of the organization and identifying ways to achieve them. This maybe be broken down into long-term plans and short-term plans.

Answer 2

Management Planning

Question 3

Steps in Financial Planning

Answer 3

1. Set goals or objectives.
2. Identify resources
3. Identify goal-related tasks.
4. Establish responsibility centers for accountability and timeline.
5. Establish an evaluation system for monitoring and controlling.
6. Determine contingency plans.

Question 4

For corporations, long term and short term identify objectives. These has shown in company’s vision and mission statements. The vision statement states where the company wants to be while the mission statement states the plans on how to achieve the vision.

Answer 4

1. Set goals or objectives.

Question 5

Resources include production capacity, human resources who will operate the operations and financial resources.

Answer 5

2. Identify resources

Question 6

In this step, management must figure out how to achieve an objective. For example, if the target, for this year is to increase sales by 15% must consider the task in achieving this goal. One task is to hire more sales agents, if the management believes that number of sales agents is not enough to support this 15% increase in sales.

Answer 6

3. Identify goal-related tasks.

Question 7

If we identified the task to achieve goals, the next important step to do is to identify which department held
accountable for this task.

Answer 7

4. Establish responsibility centers for accountability and timeline.

Question 8

For corporations, the management must establish a mechanism to allow plans to monitor. This has been done, through quantified plans such as budgets and projected financial statements. The management will then compare the actual results to the planned budgets and projected financial statements. Any deviations from the budgets will undergo investigations.

Answer 8

5. Establish an evaluation system for monitoring and
   controlling.

Question 9

In planning contingencies or unforeseen events must be considered as well. Budgets and projected financial statements anchored on assumptions.

Answer 9

6. Determine contingency plans.

Question 10

is a description in quantitative usually monetary terms of desired future result. The process of preparing the budget requires management at all level to focus on the future of the business entity.

Answer 10

Budget

Question 11

is a prediction of the firm’s sales over a specific period, based on external and internal information. The sales budget has constructed by multiplying budgeted unit sales by the selling price. See illustration below.

Answer 11

Sales budget

Question 12

is a statement of the firm that has planned inflows and outflows of cash. It forecasts the timing of theses cash outflows and matches them with cash inflows from sales and other receipts. The cash budget is also a control tool to monitor the way the company handles cash. See illustration below.

Answer 12

Cash budget

Question 13

is a tool of the company to set an overall goal of what the company’s performance and position will be for and as of the end of the year. It sets targets to control and monitor the activities of the company. Forecast or calculate the following reports:

Projected Income Statement

Projected Statement of Financial Position

Answer 13

Projected financial statements

Question 14

Required Increase in Assets - Spontaneous Increase in Liabilities Increase in Retained
earnings

Answer 14

Additional Funds Needed (AFN)