Resources from Business Victoria's seminar explains the difference between a budget and a forecast and the key elements to a good financial strategy.

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Welcome
Introduction to Seminar
What do you hope to learn in the next two hours:
Burning issues?
Topics of interest?
Opportunity to network
Have fun!

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Setting Financial Strategy
Do you have a road map to drive your business
to where you want it to be?
When planning a holiday we:
Decide where we want to go
Decide when we want to go
Work out how will we get there
Work out how much will it cost
Decide if we can afford to pay for the type of
holiday we want

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Did you have a plan when you first started in
business?
Do you want your business to be the best it
can be?
Financial strategy supports the strategic
objectives of the business
The tools you learn today when utilised effectively
will assist to evaluate and monitor the effectiveness
of your strategic plans as they are implemented
Setting Financial Strategy

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Topics for today’s seminar
Good practice business strategy
Aligning your finances to your business strategy
How to develop a profit budget that works
The importance of forecasting cash flow
Cash flow forecasting made easy

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Good practice business strategy
Improved business performance = stronger
financial results
You need to plan where you
want your business to be in
order for your business to get
there
Don’t over think it, and don’t
make it too long – a one page
plan will work just a well as a
100 page document

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Good practice business strategy
Identifies performance issues
Identifies long-term objectives
Recognises capabilities and resources needed
Documents activities required to achieve the objectives
within a specific time frame
Objectives need to be:
Clear, concise and achievable
Focusing on the key drivers in business
Monitored and measured
What does business success look like and what
needs to be done to achieve it?

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Good practice business strategy
Your annual business plan should include:
What worked and what didn’t
Are there any changes to your:
Market
Customers
Competition
Your objectives and goals for the year
How will you measure these?
What are the changes you want to make?
Any operational changes/resource requirements
Let’s spend a little time completing the table on page 6
to help you set some goals for the next year.

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Aligning finance & business strategy
Your financial strategy should be a continuous
process of directing and allocating financial
resources of the business to meet your
strategic goals and objectives.
Need to regularly review the potential future
financial position to assess the ability of your
business to meet the business strategy.

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Aligning finance & business strategy
Budgets and forecasts are critical tools that will
predict the future financial position of your
business.
Budget vs Forecast:
Budget: sets out the financial goals of the business in
line with the strategic plan
Forecast: tracks the actual financial outcomes in line
with budget predictions, providing a valuable tool to
assess the likelihood of the achievement of the
budget

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Good Financial Strategy
Realistic targets that align with:
Strategic business plans
Historical trading activities
Credible assumptions and targets in line with
industry trends.
Documented assumptions, including source of
information.

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Good Financial Strategy
Budgeted timelines aligning to:
Strategic business plans
Financial statements timelines
Regular comparison of budgets against actual
financial results.
Scope to amend activities and targets where
budgeted outcomes will not be met.

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Benefits of Good Financial Strategy
Clarity on the key drivers of your business
Tools to measure and monitor performance
Improved profitability
Increase efficiency in the use of resources and
assets
Increase productivity
Increased market share
Improved cashflow

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A profit budget that works
Good practice budgeting requires the following:
Preparation of strategic goals
Budgeted timelines that align to financial
statements
Regular comparison of budgets against actual
financial results
Scope for amending activities and targets where
actual results indicate that budgeted outcomes
will not be met

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A profit budget that works
Profit budgets are one of the most important
financial statements
They provide information on the predicted future
financial performance of the business
Will be the central financial statement to monitor
the financial impact of the implementation of your
strategic plans.

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Profit and Loss Budget
Important tool for your business
Summary of expected income and expenses
Timeline usually one year
Monitor results regularly

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Profit and Loss Budget Hint
By preparing a profit and loss budget annually,
you will be in a position to determine if your
future business plans will support the ongoing
activities of your business.

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Getting Started
Undertake in orderly manner
Involve key staff
Document all steps
Two types:
Incremental – using previous year’s activities
Zero-based – no consideration of past activities

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Getting Started
Review strategic plan and note activities for
the budget
Separate activities into existing and new
Document all assumptions
Review prior year’s profit and loss statements

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Budgeting Tip
An independent profit and loss budget can be
developed for separate projects to assess the
financial viability of each project.

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Assumptions
Estimated events that will have a financial impact
in the future
Use realistic targets that will be achievable
Use historic financial information
Look for any trends
Industry information will give your assumptions
credibility
Document assumptions
Attach to budget
Let’s look at the assumptions table on page 9

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Profit and Loss Budget
Let’s look at the Profit and Loss Budget
on page 10.
A template for a profit and loss budget can be
found by searching “profit and loss budget” at
www.business.vic.gov.au

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Managing Profit and Loss Budget
Regularly compare actual to budget
Variances
Timing
Permanent
Can be positive as well as negative
Enables you to 'drill-down' to problem areas
Is the budget wrong e.g. have trading conditions
changed?

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Managing Profit and Loss Budget Hint
The more regular the reports, the quicker
operations can be reviewed for financial
impact and action can be implemented
immediately where required.

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BUDGET is where we would like to be:
Based on annual business plan
With intervention built in to achieve objectives
Usually once a year
To provide a planned outcome
A budget should not be amended unless the
goals and objectives have changed.
Budget versus Forecast

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Forecast is planned events translated into
financial statements based on actual events
Without intervention
Real cash movements
Continually updated
A monitoring tool where the actual results are recorded to
provide a “forecast” of the planned outcomes based on how
the business is currently operating.
Let’s look at Sofie’s example on page on page 12.
Budget versus Forecast

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Cashflow Forecasting
Planning future cashflows
Important for business planning:
Support business operations
Business expansion
Essential for financial survival
Usually over a twelve month period
‘Rolling plan’ is the most useful

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Profit versus Cash
PROFIT DOES NOT EQUAL CASH!
A profitable business can still have cashflow issues.
Profit - is the amount remaining after total sales
value less costs for stock and all other expenses.
Cash - is generated from all cash inflows less all
cash outflows.

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Profit versus Cash
Profit Cash
GST
Principle loan
repayments
Interest loan
repayments
Proceeds from sale
of assets
Depreciation

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Cashflow Forecasting Hint
Remember that cashflow is all about timing
and the flow of cash, so when preparing your
cashflow forecast, make sure you are as
accurate as possible on the timing of the
cashflows.

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Cashflow Forecasting
Five step approach:
1. Prepare a list of assumptions
2. Prepare the anticipated income or sales for
the business – sales forecast
3. Prepare detail on any other estimated cash
inflows
4. Prepare detail on all estimated cash outflows
5. Put all information together – cashflow
forecast

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Cashflow Forecasting
Sales Forecast
Estimating sales is difficult
Influencing factors:
Types of customers
Terms for customers
Influence of economic
factors
Competitive pressures

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Cashflow Forecasting
Turn credit sales into cash receipts
using accounts receivable history or
terms on offer.
Let’s look at an example on page on page 16
Sales receipts collected in month following sale 60%
Sales receipts collected in 2nd month following sale 30%
Sales receipts collected in 3rd month following sale 10%

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Cashflow Forecasting
Applying the percentages on the previous slide to
his estimated sales for the next year, Joe has been
able to calculate the estimated actual cash receipts
from sales.
See page 17 of your workbook.

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Cashflow Forecasting
GST rebates
Additional equity
contribution
Tax refunds
Grants
Loan proceeds
Proceeds from sale of
assets
Other sources of
income not included in
sales, such as royalties,
franchise fees, license
fees
Other cash inflows:

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Cashflow Forecasting
Payroll
Tax (BAS, payroll)
Rent
Utilities (phone,
electricity etc.)
Insurances
Council rates
Bank Fees
Superannuation
Work cover
Advertising
Interest charges on
loans
Cash outflows – expenses:
Don’t forget to include purchase of stock in your
cash outflows!

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Cashflow Forecasting
Other cash outflows:
Purchase of assets
‘One off’ bank fees (i.e. establishment fees)
Principal repayments of the loan
Payments to the owner/s
Investment of surplus funds

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Cashflow Forecasting
See page 20 for an example
of Joe’s cashflow forecast
The template for this cashflow forecast can be
found on Business Victoria’s website – page 19
has the link.

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Cashflow Forecasting Tip
Once the forecast is completed, you can
run some “what if” scenarios to measure
how reactive your business cashflows will
be to certain changes in events, such as
decrease in sales, increase in fuel costs
etc. This will show you how quickly you
may run out of cash if any of these events
occur.

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Todays Top Tips
Effective business planning will determine
what business success looks like and what
needs to be done to achieve it
Start with an annual business plan
Develop a profit and loss budget to confirm
that your plans are financially viable
Do a cashflow forecast based on your plans
to ensure that you will have adequate
cashflow

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List 3 actions you will follow
through with as a result of this
workshop
Then
List 3 things that you’ve learned
in this seminar
List 3 actions you will follow
through with as a result of this
seminar
List 3 things that you’ve learned in
this seminar

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Business mentors help you to identify a clear direction
for you and your business.
Business mentors can also advise you on how to:
conduct market research
work out your break-even point
price and/or cost your products or services
develop an effective marketing strategy
use other business management tools
To arrange a free mentoring session with a business mentor
complete the evaluation form and select FREE Mentoring Session
on page 2. You will then receive an email with details on claiming
your free mentoring session.
FREE mentoring session

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Questions?
Thank you for attending
Check out
business.vic.gov.au/events
for more workshop information