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Transcript of Financial Planing and Management - LEAP Africaleapafrica.org/home/wp-content/uploads/2017/06/... ·...
Financial Planing and Management
Adebayo Akinwunmi
Financial Planing and Management
Adebayo Akinwunmi
Introduction
Financial Planing & Management
❖Where are you now?
❖where do you want to go? and
❖what do you need to get there?
❖The first step towards excellent financial
management for an organisation is to identify
its long-term organisational financial objectives
(where they want to go) – a seemingly simple
concept but often difficult task.
DEFINITION - FINANCIAL PLANNING AND
MANAGEMENT
❖ Financial Management means planning,
organising, directing and controlling the
financial activities of any organisation - such
as procurement and utilisation of funds of
the enterprise.
❖ It means applying general management
principles to financial resources of the
enterprise.
Financial planning is a process that includes:
1.Analysing the investment and financing
choices open to the firm.
2.Projecting the future consequences of
current decisions.
3.Deciding which alternatives to undertake.
4.Measuring subsequent performance against
the goals set forth in the financial plan.
BENEFITS OF FINANCIAL
MANAGEMENT
Good financial management will help your
organisation;
❖Make effective and efficient use of
resources;
❖Achieve objectives and fulfil
commitments to stakeholders;
❖Become more accountable to donors
and other stakeholders;
❖Gain the respect and confidence of
funding agencies, partners and
beneficiaries;
❖Gain advantage in competition for
increasingly scarce resources;
❖Prepare for long-term financial
sustainability.
PLANNING, BUDGETING AND FORECASTING
OVERVIEW
❖ Planning, Budgeting and Forecasting
(BP&F) is a three-step process for
determining and detailing an
organisation's long and short-term
financial goals.
❖ It is a method for allocating scarce
resources in-line with the strategic intent
of the business and for planning actions
to help it meet its strategic goals in
response to changing circumstances.
Planning
PLANNING: A top-down document that
defines the strategic aims of the
enterprise and high level activities
required to achieve the goals of the
organisation.
Planning for Success
Successful businesses invest time to
create and manage budgets, prepare and
review business plans and regularly
monitor finance and performance.
Business plan is never 100% accurate but
the most important thing is that there is a
dynamic plan and it should be
communicated.
Planning - A Typical Planning Cycle
1. Review the current performance against
the previous year’s performance and current
year’s targets.
2. Analyse the organisation’s successes and
failures during the previous year.
3. Identify the key objectives for the next
financial year and change or re-establish
longer-term planning.
4. Identify and refine the resource implications
of the review and build a budget.
5. Define the new financial year's profit-and-
loss and balance-sheet targets.
6. Conclude the plan.
Review it regularly - for example, on a monthly
basis - by monitoring performance, reviewing
progress and achieving objectives.
Planning - Content of an Annual Financial Plan
This should be a clear financial picture of
As-is -and To-be.
Annual plans should include:
❖ An outline of changes to be made in the
company;
❖ Potential changes in industry, market,
customers and competition;
❖ Objectives and goals for the financial
year;
❖ Key Performance Indicators;
❖ Operational changes;
❖ Information about management and
staff;
❖ Financial performance and forecasts;
❖ Details of business investments.
Benefits of Financial Plan
❖ Formal and well-structured plan focuses
Management’s attention on the direction
of the company’s performance and
provides targets that ensure business
growth.
❖ Planning is most effective when it's an
ongoing process.
❖ It guarantees a proactive approach to
situations where necessary, rather than
a reactive approach to events after they
have occurred.
Budgeting
Budgeting is an effective way to control
cashflow.
It makes allowances for investments in
worthwhile opportunities at given times
Budgeting - Benefits
Budgeting helps organisation is:
❖Controlling finances
❖Ensuring continuous funding is available for
current commitments as and when due as well
as prospective investments
❖Creating a confident approach to decision
making and achievement of objectives.
❖Manage and allocate resources effectively to
projects according to priority rather than just
preference.
❖Accomplish set objectives and monitor
organisational performance.
❖Improve decision-making thereby, planning
better for the future.
❖Identify problems before they occur - such as
the need to raise finance or cash flow
difficulties.
❖Improve employees’ motivation and moral
Budgeting & Forecasting
Outlines how company’s revenue are generated and expensed. However, It is not a forecast.
A forecast is a prediction of the future whereas a budget is a planned outcome of the future - defined by the business
plan that the organisation wants to achieve.
Once a budget is complete, it should be followed as strictly as possible. However, there should be some flexibility to
allow the company take advantage of new and unanticipated opportunities in the future.
Organisations should adopt incremental rolling budget techniques, to ensure continuous budgeting based on previous
year’s budget.
If the budget is based on the company’s business plan, a financial action plan will be derived from the process.
The organisation can measure deviation in current performance from expected performance (the budget) and control
measures can be initiated appropriately.
A company’s budget can serve as:
Business forecasting tool, which is a critical step in creating a business plan. It compels companies to continually think
about their future.
Business forecast helps to tracks the expected performance, so that timely decisions can be taken to address shortfalls
against target, or maximise an emerging opportunity.
The point of forecasting is to gain insight into the future despite uncertainty.
The most common business forecasting methods include regression analysis, moving average and Monte Carlo
simulation.
CRITICAL AREAS OF FOCUS TO IMPROVE PLANNING, BUDGETING AND FORECASTING
PROCESSES
1. Create the right organisational culture and ways of
working.
• Focus on the 360-degree leadership Approach.
• Be clear on decision-making responsibilities.
• Make all stakeholders accountable and incentivise
appropriately.
2. Integrate the process, leveraging high quality data
goals.
• Align value drivers on an enterprise-wide basis.
• Establish and agree consistent measures of success.
• Instil better data governance within the company.
• Incorporate external data where appropriate.
• Utilise rolling and incremental forecasts.
3. Deploy effective and scalable technology solutions.
• Be familiar with evolving PB&F technology market where
tangible benefits can be delivered.
• Understand technology is an enabler, not a fix
technology.
• Be clear on the business case for the investment.
• Achieve competitive advantage.
Typical Content of Planning Document
Ranging from simple to complex, a
completed financial plan will contain a series
of financial statements providing an
organised view into the data and
assumptions gathered during the financial
process, and forward projections made from
that data.
Typical content will include:
❖ Assets
❖ Projected Cash Flow
❖ Expenses
❖ Income Tax
❖ Amortisation
❖ Reports Related to Risk and Risk Mitigation
❖ Assumptions and Summary
Financial Management
ROLES OF EXECUTIVES IN FINANCIAL MANAGEMENT
“How many famous chief financial officers can you
name? I doubt they trip off the tongue like Buffett, Bezos
or Blankfein, but perhaps it is now time to look beyond
these CEOs and give the CFO more of a starring role”.
John O’Mahony | Head of EPM, KPMG UK
CTOs, CIOs, CEOs, COOs, et al need to have a more
starring role in company’s financial planning beyond
departmental contributions.
Regardless, it is very unlikely that the CEO will
personally facilitate Planning, Budgeting and
Forecasting process (PB&F).
The CFOs need to exercise sufficient control to ensure
integrity behind the numbers that result from the PB&F
process.
❖ All C -suite executives are strategic leaders
in the organisation and should not limit
their interest to their specialisations only .
❖ How do they do that while at the same time
gaining traction as a strategic leader in the
business?
❖ While a degree in finance is not required,
good knowledge of financial management
is critical for C-suite executives.
❖ Good financial Management is the result of
having confidence that all pillars are being
looked after to the extent that your
processes are devoid of gaps.
❖ C-suite executives can be actively involved
in the company’s financial performance by
focusing on four specific activities:
Timely and Accurate Recording and Reporting Systems
1. Process Management Skills – Application of
knowledge, skills, tools and systems to define,
visualise, measure, control, report and improve
processes to meet a specific goal.
2. Financial Statement Expertise – Refers to
knowledge of the income statement, balance
sheet and cash-flow statement. Understanding
that gross margins, overhead costs, assets and
liabilities are not just terminologies but are vital
indicators of the company’s well-being. They
explain how money moves through the
organisation and here are important to its
success. It’s essential to have a good grasp of
each element and how they connect.
3. Key Performance Indicators/Dashboard – an
understanding of the KPI’s across different
sections of the organisation will ensure financial
planning process is carried out with full
awareness and in harmony with KPIs.
Business Planning and Business Growth
1.Financial Forecasting – Analytics, market
research and use of financial statements
all help to project the company’s future
finances. This data is key to strategic
planning
2.Investment Analysis – Assessing the
potential profitability of a long-term
investment. What will the return on
investment (ROI) be? For example, to
build a new plant, the organisation needs
to determine the cost to build, revenues
from the building project, and costs
related to those revenues. It is also
important to be prepared for potential
unexpected costs, such as issues with
construction or other unforeseen
challenges.
Governance and Controls
1. Compliance – Adequate understanding
of Controls, Governance and regulatory
filings will also be significant to financial
management. Awareness and application
of laws, regulations and policies in terms of
accounting and auditing as well as rights
and responsibilities of stakeholders, rules
and procedures that govern corporate
decision making are the foundation of
effective financial management.
2. Risk Management – Risk Management
is a very important area for boards and
corporations and is usually headed by the
risk committee. C-suite executives would
make invaluable contributions to the Risk
Management strategy.
Tools and Accelerators
❖ Planning requires historical data
and ability to forecast or predict
future based on several inputs
❖ Several Software are available
in the market today
❖ Always look for the “best fit” and
“not best in class”
❖ Tools with “Industry Best
Practise” are usually well
thought through and reduces
implementation headaches
Some Common Tools
CONCLUSION
With a solid understanding of these
concepts, C-suite executives will be in a
position to make informed decisions, paving
a clear path toward financial success.
Planning Budgeting and Forecasting
process develops a seasoned financial plan,
that acts as an “armour” in prospective
financial year. PB&F process is a guide not
the ultimate destination. More effort should
be invested in executing the process rather
than designing it.
C -suite executives are the “brains” of the
organisation. The PB&F process is vital
enough to require active participation from
all the “brains” in the company.
Executive should also acquire the necessary
skills to be relevant to the PB&F process.