Management pocketbooks the business planning pocketbook phần 7 pptx

PLANNING PROCESS7: FINANCIAL MODELLING BALANCE SHEET : EXAMPLE Current assets cash, investments, debtors, stock, prepayments Less Current liabilities tax, creditors, S/T debt, dividends

PLANNING PROCESS

7: FINANCIAL MODELLING

BALANCE SHEET : EXAMPLE

Current assets (cash, investments, debtors, stock, prepayments)

Less

Current liabilities (tax, creditors, S/T debt, dividends)

Net working capital

Plus

Fixed assets (plant, machinery, land and buildings, IT, etc)

Less

Creditors (loans, long-term creditors, deferred tax)

Net assets

financed by

Shareholders’ (capital, retained profit, reserves)

net worth

£ m

50

(25)

15

100

(70)

45

45

PLANNING PROCESS

7: FINANCIAL MODELLING

SOURCES & USES OF FUNDS

This statement shows how an organisation funded itself through the year In particular it shows:

● Where the money came from

● Where it went

● The duration of the funds in

● The maturity of funds out (to allow mismatch analysis)

It is self-evident that sources and uses should by and large reflect the same timescale It would be very foolish to borrow short-term (less than three months or even overnight) to fund a long-term (eg: five year) project Interest rates would probably move against you, maturity of outflows would almost certainly occur at unfavourable times, and you might

be unable to fund the project at any given time if there was a credit squeeze

Demonstrating that this aspect has been considered goes a long way to

instilling confidence in you and your plan

PLANNING PROCESS

7: FINANCIAL MODELLING

SOURCES & USES STATEMENT

Sources

● Pre-tax profit

● Depreciation

● Sales of assets

● Decrease in stocks

● Decrease in debtors

● Shares issued

● Increased loans

● Increased creditors

Applications/uses

● Dividends paid/drawings

● Tax payments

● Loan repayments

● Decrease in creditors

● Increase in stocks

● Increase in debtors

● Purchase of assets

PLANNING PROCESS

7: FINANCIAL MODELLING

SOURCES & USES

Key points - there are only four sources of funds:

● Cashflow from operations

● Asset sales

Funds will not come from anywhere else, so any funding must be explained in these

terms Anyone looking at the plan will give especial attention to funding, as it is a lack of this that causes problems

This statement provides the link between the opening balance sheet, the profit and loss for the period and the closing balance sheet

Sources of funds are increases in liabilities (increase in borrowing/capital) or

decreases in assets (release of funds, use of cash), Applications of funds

are decreases in liabilities (repayments/payments) or increases in assets

(purchases or extra cash)

● Capital injection

● Debt

NOTES

PRACTICAL PLANNING

PRACTICAL PLANNING

STRUCTURING A PLAN

When assembling a plan, you must think of those reading it - whether your colleagues, superiors, investors, creditors or suppliers

● Does it say what you want it to say, in the

best manner, portraying your organisation

in the best light, truthfully but giving your

readers the information that they need?

● Is all relevant information present and in an

easily digestible form?

● Is there a logical flow?

● Does it support your objectives?

Wherever possible, detail should be in

appendices so as not to detract from the key

messages, and to provide clarity and ease of reading

PRACTICAL PLANNING

STRUCTURING A PLAN

Typical structure of a plan would be as follows:

● Summary

● Introduction and description of the business

● Market analysis

● Internal situation analysis

● Marketing plan

● Operational plan

● Financials

● Resource requirements

● Appendices

An example using a company for illustration follows on the next few pages

PRACTICAL PLANNING

EXAMPLE COMPANY

The example company operates in the brewing industry

● It has a turnover of £150 million

● It has 80 employees

● The board consists of five executive directors (family) and three non-executives

● It has just introduced a role of planner, and put in hand a planning process, having undergone a strategic review last year

● It is based in the north of England where

its market is primarily located

The example is fictitious but

intended to illustrate a plan

In the following pages extracts

from its plan are shown

PRACTICAL PLANNING

STRUCTURING A PLAN

STYLE OF SUMMARY

● The key objective is to get the readers’ attention and to make them wish to

read on

● For very large organisations, the summary may itself be quite lengthy, in

other firms quite short

● It should, however, be a stand-alone document which takes the readers by

the hand and leads them to support the conclusion that you have drawn

● Many people will read nothing else, but the rest of the plan should support

the summary, allowing them to ‘drill down’ for information

PRACTICAL PLANNING

STRUCTURING A PLAN

BREWING COMPANY SUMMARY

✹ Increase market share by 3% in draught beer, 5% in bottled beer and 7% in soft drinks

✹ Absolute increase in sales by 12%, improved profits by 20% (from market penetration and reduced costs)

✹ Replace general ledger with new package

✹ Outsource distribution