Finance for non financial managers course- Financial planning

www.businessservicessupport.com

FINANCIAL PLANNING- HOW TO

PRODUCE FINANCIAL FORECASTS

PART OF FINANCE FOR NON FINANCIAL

MANAGERS COURSE PROGRAMME

http://www.businessservicessupport.com/

COPYRIGHT© TO BUSINESS SERVICES SUPPORT LIMITED 2011

KEY OBJECTIVES

What is financial planning

Benefits of financial planning

How to put together a financial plan

Practice illustration of financial plan

2


DEFINITION OF FINANCIAL PLANNING

Concern with the determination of

financial resources required to deliver

business goals and objectives

3


WARNING- FINANCIAL PLANNING TIPS

Financial planning must be preceded by a business plan

Effective financial plans starts from clearly understanding the vision and mission of a business

4


Help businesses analyse resources

Help businesses determine viability

Action plan for financial weaknesses

Financial resources for meeting goals

How much resources required for investment

OBJECTIVES OF FINANCIAL PLANNING

5


FINANCIAL PLANNING V EXTERNAL

ENVIRONMENT

Questions To Be Asked In Regard PEST Analysis:

Political

Economical

Social attitudes

& Changes

Technology


A SIMPLE APPROACH FOR PREPARING

FINANCIAL PLAN

7

What resources are required

The competition

profile

Key suppliers of resources

The market profile

The political regulations and

economic conditions


SETTING REALISTIC ASSUMPTIONS FOR

FINANCIAL PLANNING

8

Sales Turnover Forecast

Expenditure Forecast

Cash Flow Forecast

Income and Expenditure

Accounts (P&L) Forecasts

Balance Sheet Forecast


PRACTICAL EXAMPLE FOR PUTTING

TOGETHER SALES FORECAST

9

English Courses:

No of students (demand for English courses)

500 Students

No of course hours ( i.e. The number of hours students will spend studying the courses)

400 hours

Course fee per student £100

Total sales income forecast £ 50,000


PRACTICAL EXAMPLE FOR PUTTING TOGETHER

SALES FORECAST

10

ICT Courses:

No of students (i.e demand for ICT courses)

200 Students

No of course hours ( i.e. The number of hours students will spend studying the courses)

80 hours

Course fee per student £50

Total sales income forecast £ 10,000


PROFILING SALES INCOME FORECAST

11

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

£ £ £ £ £ £ £ £ £ £ £ £

5000 6000 9000 20000

Sales

Income

Financial

Year

2007/08

January £5000

February £5000

March £5000

April £5000

May £5000

June £5000

July £5000

August £5000

September £5000

October £5000

November £5000

December £5000

Total £60,000


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Staff Name

Post TitleGross

SalariesEmployer’s

NICEmployers Pensions

Total Salary

Peter Jones

Manager £14,000 £500 £500 £15,000

Denis Bill Tutor £9,200 £200 £200 £9,600

Total £23,200 £700 £700 £24,600

PRODUCING ANNUAL SALARIES FORECAST


ANNUAL EXPENDITURE FORECAST

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Expenditure Assumptions £

Salaries:

Admin 1 (part time)

Manager

15,000

Tutor 2 (part time) £10 per hour x 480

hours

9,600

Marketing & Sales 10,000

Rents £300 per month 3,600

Office & Training Equipments 10,000

Utilities (telephone etc) 1,200

Stationery £60 per month 720

Insurance 400

Professional fees (legal,

accountancy etc)

10,000

Other expenses 10,000

Total 70,520

Summarise your assumptions here:

1. Staffing : 1 Office Manager & 2 tutors (all part-time)

2. Prices of goods and services are based on current market conditions.

3. All cost types have been carefully researched.

4. Professional fees include all types of professional advice required from

the stage of setting up the business etc.


PROFILING EXPENDITURE FORECAST

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Expenditure Financial

Year

2007/08

January £15043.33

February £5043.33

March £5043.33

June £5043.33

July £5043.33

August £5043.33

September £5043.33

October £5043.33

November £5043.33

December £5043.33

£70,520


PUTTING TOGETHER PROFIT & LOSS

ACCOUNT FORECAST

15

£ £ Commentary

For Users

Sales £60,000 See total

income forecast

Cost of Sales (tutors salaries) 9,600 This is a direct

cost of training

services

Gross Profit 50,400

Administration & Overheads

Admin Manager 15,000

Marketing & Sales 10,000

Rents 3600

Office & Training Equipments (depreciation) 2500 See note below

Utilities (telephone etc) 1200

Insurance 400

Stationery 720

Professional fees (legal, accountancy etc) 10,000

Other expenses 10,000 53,420

Net Profit 3,020


PUTTING TOGETHER OF CASHFLOW

FORECAST

WHAT IS CASH-FLOW FORECASTING

16

A projection of actual cash receipts against cash payments

A measurement of liquidity


PUTTING TOGETHER THE CASH FLOW

FORECAST

17

Key questions:

•When do you expect to receive the sales income in your sales forecast?

• When do you expect to pay suppliers for goods and services you will purchase?

•What will be your credit policy? In short, will customers be given credit and if so how many days?

•Are the credit terms extended to customers too generous or competitive?

•Is there a plan to raise capital for the business from third parties?

•Who are the main financiers of the business?


CASH FLOW FORECASTS IN PRACTICE

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Description Jan- March 07 April-June 07 July-Sept 07 Oct-Dec 07 Total

£ £ £ £ £

Balance brought fwd -12630 -10260 -12890

Cash Receipts

Sales income- training 10000 15000 15000 15000 55000

Total Receipts 10000 15000 15000 15000 55000

Cash Payments

Salaries

Admin Manager 3750 3750 3750 3750 15000

Tutor 2400 2400 2400 2400 9600

Marketing 2500 2500 2500 2500 10000

Rents 900 900 900 900 3600

Equipment 10000 10000

Utilities 300 300 300 300 1200

Stationery 180 180 180 180 720

Insurance 100 100 100 100 400

Professional fees 2500 2500 2500 2500 10000

Other Expenses 5000 5000 10000

Total payments 22,630 12630 17630 17630 70520

Cash Book Balance -12630 -10260 -12890 -15520


BALANCE SHEET FORECASTS 2007/08

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Fixed Assets £ £

Office & Training Equipment

10,000

Depreciation ( 2500)

Net Book Value 7500

Current Assets

Debtors 5000

Cash (16000-15520) 480

5480

Current Liabilities 12980

Creditors 0

Long-Term Liabilities 16000

Loss in the year (3020)

12980


BALANCE SHEET FORECASTS CONTD

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Office Equipment – Is an asset and the full costs should be recorded in the balance sheet. It is a

tangible item used to create income.

Depreciation- this represents the reduction in the value of the equipments to recognise their

contribution toward income generation. Some assets appreciate in value in real life and so there may

be justification not to make any adjustments for depreciation.

Current Assets- This is a mixture of different types of sub-assets. Debtors are monies owed to the

business- refer to the cash flow forecast. Cash balance is the difference between the loan of £16000

and the shortfall shown in the cash flow forecasts before the loan.

Long-term liabilities- represent the amount of loans borrowed from the bank.

Loss in the year- is the difference between the sales forecast and expenditure forecast shown in the

profit and loss forecast statement.


CONCLUSION – THE END

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Finance for non financial managers course- Financial planning

Education

Transcript of Finance for non financial managers course- Financial planning