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Planning Methodology

1. Financial plan in general


What is a financial plan?

In its simplest form a financial plan can be a budget to run the family income and expenses. In a company however a financial plan lists future inflows and outflows of cash, projected income statements and balance sheets. Based on this data a series of simulations or “What If” scenarios are performed on what management actions ought to be taken to achieve the financial targets on liquidity and profitability, which may differ from those in the baseline. The financial plan includes various types of inflows of cash, such a capital provisions besides the initial investment, revenue and various types of outflows of cash such as expenses, for instance inventory, supplies, salaries, marketing and promotion and general and administrative expenses. A financial plan can also be an investment plan, which allocates capital to various assets or projects expected to produce future income, such as a new business or product line, machinery, shares in an existing business, or real estate. In a business, a financial plan includes cash flows and the three primary financial statements (balance sheet, income statement, and cash flow statement) created within a more comprehensive business plan. A financial forecast or financial plan can also refer to an annual projection of income and expenses for a company, division or department. A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, through borrowing or issuing additional shares in a company. While a financial plan refers to estimating future income, expenses and assets, a finance plan usually refers to the sources by which cash will be provided to cover future expenses, for instance, through capital provision, profits, supplier’s credits, bank borrowing or using saved cash. Financial planning uses different “scenarios” or “what if” cases. In performing financial planning the student will: • Apply the knowledge and skills obtained in previous sections of the course to prepare and interpret cash flows and the main financial statements such as the income statement and the balance sheet. • Analyse 

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