What Is Financial Planning Finance Essay
The process of financial planning is planned to forecast future financial results and determines how best to utilize the companys financial resources, in the organisation short and long run objectives, because it involves looking well into the future. It is highly creative thinking process as well as a logical one.
Company that forecast financial planning can grow their revenues in more efficient way then those organisations that do not have an effective financial planning. It gave an idea to businesses where they should give attention to its resources for maximum effectiveness. well-organized financial management allows more funds to be available for marketing, expanding and development, which in return brings more growth.
Why ZKD’S need to plan its financial activities?
Due to not planning financial activities, ZKD’S are currently facing different problems related to its financial activities such as:
No enough cash even to fulfil business immediate needs.
Suppliers are not satisfied with the credit policy provided.
Disagreement with suppliers after placing order
No proper planning or market research before purchasing assets.
Every organisation, business, company and even an individual should and must plan its financial activities, in order to stay stable and secure their futures.
ZKD’S must think before dealing with any type of financial activities. The partners should plan its financial activities so that there should be no cash flow problems. They must pay on time and should have a good link with supplier. ZKD’S should contact their suppliers and explain the situations. ZKD’S should make sure that they can offer a specific detail on when they will pay and how much then stick to that agreement. Another good option can be to offer shares to supplier and make him a part of the business. You will surprise with the response.
As ZKD’S don’t have its own outlet, so after planning they will be able to have their own outlet and will expand.
What is credit policy?
The guideline line that shows out how to decide which customers are sold on open account, the exact payment terms, the limits set on outstanding balances and how to deal with bad accounts.
IMPORTANCE OF CREDIT POLICY:
Relationship between stakeholders and financial information
Stakeholders are people, groups, organization with direct or indirect interest in the company’s success.
Stakeholder is a person who has to gain or lose something by the planning and decision or business.
Types of stake holders:
employees and trade unions
Creditors are bodies supplying goods on credit or bankers and even lenders. They want to know about the financial position of business by looking into different ratios and income statement, and will make sure whether the business will be able to make payment back and if it does than will it be on time?
Government is interested to analyze the financial position and determine whether the business is paying fair tax
Owners are the most interested users of financial information. They want to know how much capital the business consumed to generate the sales revenue. They are concerned with the business profits. All this information will come from income statement.
Managers are responsible for the overall performance of business. They make different decision and want to through financial information that whether there decision worked or not.
Employees and trade unions:
Employees and trade unions are interested in the annually financial reporting throw which they will know about the overall performance and if it goes well than they will demand performance related pay, bonus and job security.
competitors need financial information to compare their own performance with that of other entity.
What is financial statement?
Financial statement are mean to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers. Financial statements for businesses usually include income statement balance sheet and statement of cash flows as well as other possible statements.
The income statement is one of the three measure financial statements that discloses information about revenues and expenses that are a direct result of the regular business operations.
Is the summary of companies’ assets, liabilities and the owners equity, it also gives shareholders an idea to know what the company owns and owes.
Statements of cash flows:
A document providing data regarding the cash inflow which the business company receives ongoing operations and cash outflows that the company pays for day today activities or expenses
Format of Balance Sheet
BALANCE SHEET OF ABC LTD AS AT 31.03.2010
ASSETS Notes Amount Amount
Non Current Assets
Property Plant & Equipment 1 x
Intangible Assets 2 x
Trade Receivable x
Cash & Cash Equivalent 3 x x
Total Assets x
EQUITY AND LIABILITIES
Share Capital x
Share Premium x
Revaluation Reserves x
Retained earnings x
Total Equity x
Non Current Liabilities X
Trade Payables x
Other Payables x
Bank Overdraft x x
Total Equity and Liabilities x
Format of Income Statement
INCOME STATEMENT OF ABC LTD FOR THE YEAR ENDED 31.03.2010
Cost of Sales (x)
Gross Profit x
Other income x
Distribution Cost (x)
Administrative Expenses (x) (x)
Sources of financed available for businesses:
Not willing to finance newly established business, unless the businesss is owned by an experience entrepreneur who has a complete business plan.
Are those who are willing to invest to businesses when they are first beginning. Business can often receive finance from friends and family even if the source of funding is small. Such type of investors are known as angel invests who are difficult to find.
When the business grows enough and become a limited company they have the right to issue shares on stock exchange. Selling shares means selling a proportion of the ownership of business which is a strong source of finance as people buy shares and become shareholders.
You can use credit cards for your financing needs according to the policy of banks. Credit cards can offer a quick way to get the financing you need. Interests rates are attached to credit cards if paid back after its due date.
It is a method of expanding business. Under a franchising arrangement a franchisee pays a franchisor for the rights to operate a local business under the franchisor’s trade name. the amount of finance comes to a franchisor is also a good source of finance.
Is a form of instalments accredit in which the ownership transfers to the hire purchase customer after the payment of final payment credit instalments.
No return for a time being
Free of interest for limited time
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