All about financial planning

1. Financial Planning
•Action plan of the org
•Long term direction or road map
•Future course of action
•Action oriented plan to setup guideline
•Plan helps optimum utilization resources

2. Strategies
• Means by which long term objectives
achieved
• It is a unified, comprehensive, and integrated
plan
• Designed to ensure the objective can be
achieved

3. Strategic Plan
• Long term plan to achieve objectives
• Way to determine objectives and strategic
decision
• Systematic approach ensures success and
protect from unexpected events
• Difficulties to operate business without LTP
• Allows efficiently to change business
environment.

4. Elements of strategic plan
1. Corporate Purpose:
• General philosophy of business
• Broad framework of long term goals
• It guides the scope, objectives, and strategies
• It is also known as mission statement
• It guides the formulation of operation plans and
budgets
• Road maps for guiding, coordinating and
controlling the financial action to achieve
objectives

5. 2) Corporate Scope
• It defines overall business scope from product
and customers
• Firm’s line of business and its geographical
area of operation
• Focuses on product and services to satisfy
customers

6. 3)Corporate Objectives
• Specific sets of goal which guides for smooth
operation
• The goal may be quantitative and qualitative
• Qualitative goal cannot measure easily
• But quantitative goal can measure easily
• So, it should be SMART

7. 4) Corporate strategy
• Must develop strategies for achieving its goal
• They are concerned with board issue
• They are broad approaches rather than plans
• They specify specific actions to be taken
• It works as instrument for achieving objectives

8. Operating plans
Operation plan is a detail guideline for effective
implementation of corporate strategies, which
helps achieve corporate objectives. Operating
plans could be formulated for any time
horizon, however, five years . Five years
planning horizon is the most common in
practice. It works in details about who is
responsible for a specific task and when the
specific tasks are to be carried out.

9. Operating plan
Operation plans are concerned with functional issues of the
firm as to how they contribute to corporate level to
facilitate corporate plans.
There should be a considerable coordination among the
several departments of the firm while formulating
operating plan. For example, if the corporate objective is to
make the sales double , each functional area must
formulate the operating plans at their level to support this
corporate objective. Like purchase dept., production dept.,
human resource dept., finance dept., accounting dept.. A
better coordination and harmonization among these
departments help achieve the corporate objective
efficiently.

10. Financial plan
The financial plan refers to the projection of future
financial course of action to be carried out for
efficient execution of operating plans and
effective accomplishment of corporate objectives.
It begins with the preparation of strategic plans
that in turn guides the formulation of operating
plans and budgets. It provides roadmap for
guiding, coordinating and controlling the firm’s
financial action in order to achieve its objectives.
Most corporate organization spend significant
time and labor in preparing the financial plan as it
enables a firm.

11. Factors to be considered to prepare
financial plan
• To identify the actions to be taken for financial
functions
• To develop various options in the field of finance
functions that can be exercised as condition changes
• To systematize the interaction required between
investment and financing decision
• To state clearly the relation between present and
future financial decision
• To ensure that strategic plan of the firm is financially
viable
• To provide standard against which future financial
performance is compared

12. Process of financial planning
A financial plan involves the forecast and use of
various types of budgets. These budgets are
prepared for every key area of firm’s activities
such as production, marketing, research and
development, purchase and so on. The major
steps involved in planning process are:
• Project financial statement to analyze the effect
of the operating plan on projected profits and
various financial ratios.
• Determine the financial funds to support and
implement the periodic plan.

13. Process of financial planning contd.
• Forecast availability of funds and estimates the
internal funds and external funds.
• Establish and maintain a system of controls to
check the allocation and use of funds with in the
firm.
• Develop procedures for adjusting the basic plan
for the favorable or unfavorable future events.
• Establish a performance based management
compensation system.

14. Sales forecast
The financial forecasting begins with sales forecast. Sales
forecast is simply a forecast of firm’s future sales both in
terms of volume and value. The sales forecast always
begins with analyzing the historical trends in sales over the
past years. It also takes into consideration the future
economic prosperity of given line of business. To determine
the forecasted sales growth, the firm must rely on
competitive market conditions, customers’ tastes and
preferences, change in technology and future possibilities
of market expansion. Now a day, several statistical models,
such as regression analysis, time series analysis,
econometric models are used to consider all these factors
in providing sales forecast. :

15. factors to be considered for sales
forecast
• Provide a projection of divisional sales based on
historical growth and combine the divisional sales
forecasts to provide approximate corporate sales
forecast.
• Forecast the level of economic activity in each market
area of the firm along with the change in population
and their economic growth.
• Estimate the market share of the firm that is expected
in each market area.
• Forecast the effect of future rate of inflation on the
consumers’ purchasing power and price of products.

16. Factors to be considered contd.
• Consider the effect of advertisement campaigns, price
discounts, credit terms and so on.
• Provide the ultimate forecasts of sales for each division
both in aggregate and on an individual product basis.
• Method of sales forecasts
• Sales person
• Customer survey
• Time series Yt = f(t)
• Econometric model
• €Y = a+ b1x1=b2x2+b3x3+………+bnxn+e