Financial Planning- How to produce financial forecasts Part of Finance for non financial managers Course Programme

DELIVERED BY: Business Services Support Limited Visit www.businessservicessupport.com Tel: 0845 226 4315

Key Objectives

What is financial planning

Benefits of financial planning How to put together a financial plan

Practice illustration of financial plan

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Definition of financial planning

Concern with the determination of

financial resources required to deliver

business goals and objectives

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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

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Objectives of financial planning

Help businesses analyse resources

Help businesses determine viability Action plan for financial weaknesses Financial resources for meeting goals How much resources required for investment

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Financial Planning v External Environment

Questions To Be Asked In Regard PEST Analysis:

Political Economical

Social attitudes
& Changes

Technology

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A Simple Approach For Preparing Financial Plan

What resources are required

The competition profile

Key suppliers of resources

The market profile

The political regulations and economic conditions

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Setting Realistic Assumptions For Financial Planning

Sales Turnover Forecast

Expenditure Forecast

Cash Flow Forecast

Income and Expenditure Accounts (P&L) Forecasts

Balance Sheet Forecast

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Practical Example for putting together Sales Forecast

English Courses: No of students (demand for English courses) 500 Students

No of course hours ( i.e. The number 400 hours of hours students will spend studying the courses)

Course fee per student

100

Total sales income forecast

50,000
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Practical Example for putting together Sales Forecast

ICT Courses: No of students (i.e demand for ICT courses) 200 Students

No of course hours ( i.e. The number 80 hours of hours students will spend studying the courses)

Course fee per student

50

Total sales income forecast

10,000
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Profiling Sales Income Forecast

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

Sales Income January February March April May June July August September October

Financial Year 2007/08 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000

5000 6000 9000 2000 0

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Producing annual Salaries Forecast

Staff Name Peter Jones Post Title Gross Salaries Employers NIC Employers Pensions Total Salary

Manager

14,000

500

500

15,000

Denis Bill

Tutor

9,200

200

200

9,600

Total

23,200

700

700

24,600

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Annual Expenditure Forecast

Expenditure Salaries: Admin Tutor 2 (part time) Assumptions 1 (part time) Manager 10 per hour x 480 hours 300 per month 15,000 9,600

Marketing & Sales Rents Office & Training Equipments

Utilities (telephone etc) Stationery Insurance Professional fees (legal, accountancy etc) Other expenses Total

10,000 3,600 10,000

1,200 720 400 10,000

60 per month

10,000 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.

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Profiling Expenditure Forecast

Expenditure Financial Year 2007/08 15043.33 5043.33 5043.33 5043.33 5043.33 5043.33 5043.33 5043.33 5043.33 5043.33 70,520

January February March June July August September October November December

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Putting Together Profit & Loss Account Forecast

Sales

60,000

Commentary For Users See total income forecast

Cost of Sales (tutors salaries) Gross Profit Administration & Overheads Admin Manager Marketing & Sales Rents Office & Training Equipments (depreciation) Utilities (telephone etc) Insurance Stationery Professional fees (legal, accountancy etc) Other expenses Net Profit

9,600

This is a direct cost of training services 50,400

15,000 10,000 3600 2500 1200 400 720 10,000 10,000 53,420 3,020 See note below

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Putting Together of Cashflow Forecast

WHAT IS CASH-FLOW FORECASTING
A projection of actual cash receipts against cash payments

A measurement of liquidity

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Putting Together The Cash Flow Forecast

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?
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Cash Flow Forecasts In Practice

Description
Balance brought fwd Cash Receipts Sales income- training Total Receipts Cash Payments Salaries 10000 10000 15000 15000 15000 15000 15000 15000 55000 55000

Jan- March 07

April-June 07
-12630

July-Sept 07
-10260

Oct-Dec 07
-12890

Total

Admin Manager
Tutor Marketing Rents Equipment Utilities Stationery Insurance Professional fees Other Expenses

3750
2400 2500 900 10000 300 180 100 2500

3750
2400 2500 900 300 180 100 2500

3750
2400 2500 900 300 180 100 2500 5000

3750
2400 2500 900 300 180 100 2500 5000

15000
9600 10000 3600 10000 1200 720 400 10000 10000

Total payments Cash Book Balance

22,630 -12630

12630 -10260

17630 -12890

17630 -15520

70520

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Balance Sheet Forecasts 2007/08

Fixed Assets Office & Training Equipment Depreciation Net Book Value Current Assets Debtors Cash (16000-15520) Current Liabilities Creditors Long-Term Liabilities Loss in the year 10,000 ( 2500) 7500

5000 480 5480 12980 0 16000 (3020) 12980

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Balance Sheet Forecasts Contd

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.

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Conclusion The End

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