FINANCIAL MANAGEMENT PLANNING.
1. UNIT 11. Текст «FINANCIAL MANAGEMENT PLANNING», стр. 118-121 читать, переводить, выписать незнакомые слова.
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Учебник: Агабекян И.П.
А23 Английский язык для менеджеров/ И.П. Агабекян, —- Mосква: «Проспект», 2019 — 352 с (Высшее образование).
TEXT 3. FINANCIAL MANAGEMENT PLANNING.
Short-term planning is generally concerned with profit planning or budgeting. Long-term planning is generally strategic, setting goals for sales growth and profitability over a minimum of three to five years.
The tools for short- and long-term plans are: Income Statements, Cash Flow Statements or Budgets, Ratio Analysis, and pricing considerations. The business's short-term plan should be prepared on a monthly basis for a year into the future, employing the Income Statement and the Cash Flow Budget.
The long-term or strategic plan focuses on Statements of Income prepared for annual periods three to five years into the future.
First determine a rate of growth that is desirable and reasonably attainable. Then employ Statements of Income and Cash Flow Budgets to calculate the capital required to finance the inventory, plant, equipment, and personnel needs necessary to attain that growth in sales volume. The business owner/manager must anticipate capital needs in time to make satisfactory arrangements for outside funds if internally generated funds from retained earnings are insufficient.
Growth can be funded in only two ways: with profits or by borrowing. If expansion outstrips the capital available to support higher levels of accounts receivable, inventory, fixed assets, and operating expenses, a business's development will be slowed or stopped entirely by its failure to meet debts as they become payable. Such insolvency will result in the business’s assets being liquidated to meet the demands of the creditors. The only way to avoid this is by planning to control growth. Growth must be controlled. This requires knowledge of past financial performance and of the future requirements of the business.
These needs must be forecast in writing - using the Income Statement in particular - for three to five years in the future. After projecting reasonable sales volumes and profitability, use the Cash Flow Budget to determine (on a quarterly basis for the next three to five years) how these projected sales volumes translate into the flow of cash in and out of the business during normal operations. Where additional inventory, equipment, or other physical assets are necessary to support the sales forecast, you must determine whether or not the business will generate enough profit to sustain the growth forecast.
Often, businesses simply grow too rapidly for internally generated cash to sufficiently support the growth. If profits are inadequate to carry the growth forecast, the owner/manager must either make arrangements for working growth capital to be borrowed, or slow growth to allow internal cash to “catch up” and keep pace with the expansion. Because arranging financing and obtaining additional equity capital takes time, this need must be anticipated well in advance to avoid business interruption.
To develop effective long-term plans, you should do the following steps:
1. Determine the financial goals and objectives for the company (growth rates, return on investment, and direction as the business expands and matures).
2. Express these goals in specific numbers, for example, sales growth of 10 percent a year, increases in gross and net profit margins of 2 to 3 percent a year, a return on investment of not less than 9 to 10 percent a year. Use these long-range plans to develop forecasts of sales and profitability and compare actual results from operations to these forecasts.
3. Develop long-range plans and strategies based upon careful analysis of all relevant factors (pricing strategies, market potential, competition, cost of borrowed and equity capital as compared to using only profits for expansions, etc.) to provide direction for the future of business.
4. Focus on the financial, human, and physical requirements necessary to fulfill the plans by developing forecasts of sales, expenses, and retain earnings (retained income) over the next three to five years.
5. Study methods of operation, product mix, new market opportunities, and other such factors to help identify ways to improve company's productivity and profitability.
6. Compare your company's financial performance regularly with current industry data to determine how your results compare with others in your industry. Learn where your business may have performance weaknesses. Don't be afraid to modify your plans.
Planning is a perpetual process. It is the key to prosperity
of any business.
Assignment. Answer the questions:
1. How often a short-term business's plan should be prepared?
2. How often a long-term or strategic plan should be prepared?
3. What are the steps necessary to develop effective long-term plans?
Assignment. Write a short essay on:
1. Differences in financial management in a small company and a big company.
2. Financial planning and its importance for business.