FINANCIAL PLANNING

TOOLS AND
CONCEPTS
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○ Explain the importance of

LEARNING financial planning.
OBJECTIVES
○ Differentiate between
strategic planning and
tactical planning
○ Enumerate and apply the
steps in planning.
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How do you
see yourself
five years
from now?
PLANNING
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Planning is an important
aspect of the firm’s operations
because it provides road maps
for guiding, coordination, and
controlling the firm’s actions to
achieve its objective. (Gitman
& Zutter, 2012)
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Financial Planning is the process of
estimating the capital requirements and
determining their sources including
their efficient utilization. (De Guzman,
2019)
Can be in short term or long term
plans.
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Long-term Short term Planning
Planning

Person More Top management

STRATEGIC Involved participation still involved in
from top planning but more
AND TACTICAL management participation from
PLANNING lower level
managers.

Time Period 2 to 10 years 1 year or less

Level of Less More

Detail
Focus Direction of the Everyday
company functioning of the
company
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• These are a set of goals that lay out the overall direction of
the company.
• A long-term financial plan is an integrated strategy that
LONG-TERM
takes into account various departments such as sales,
FINANCIAL production, marketing, and operations for the purpose of
PLANNING guiding these departments towards strategic goals.
• Those long-term plans consider proposed outlays for fixed
assets, research and development activities, marketing and
product development actions, capital structure, and major
sources of financing.
• Also included would be termination of existing projects,
product lines, or lines of business; repayment or retirement
of outstanding debts; and any planned acquisitions(Gitman
& Zutter, 2012).
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• Specify short-term financial actions and the

anticipated impact of those actions. Part of
SHORT-TERM
short term financial plans include setting the
FINANCIAL
sales forecast and other forms of operating
PLANNING
and financial data. This would then translate
into operating budgets, the cash budget, and
pro forma financial statements (Gitman &
Zutter, 2012).
IMPORTANCE
OF
FINANCIAL
PLANNING
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1. It ensures adequacy of funds.
2. Helps in maintaining stability through a reasonable balance
between outflow and inflow of funds.
3. Ensures the support of its investors through provision of
funds due to the presence of sound financial and investment
policies.
4. Helps prioritizing expansion programmes needed for the long
run survival of the company.
5. Reduces uncertainties brought by the changing market
trends which can be faced easily through the establishment
of enough funds.
6. Helps avoid hindrances to growth of the company by
considering the capital requirements both for short term and
long term plans.
STEPS IN
PLANNING
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Set goals or objectives

•The goals of a company can be divided into short-
STEP 1 term, medium term, and long-term goals.

•Long-term and medium-term plans are generally

established during strategic planning where the
vision and mission of a company are formulated or
revisited.

•Short term goals are designed to support medium-

term and long-term goals.
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STEP 2 Identify resources

•Resources include production capacity, human

resources who will man the operations and
financial resources.
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STEP 3 Identify goal-related task

•Management must figure out how to achieve an
objective
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Establish responsibility
centers for accountability and
STEP 4 timeline
•If tasks are already identified to achieve goals,
the next step is do is to identify which department
should be held accountable for the task.
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Establish an evaluation system

for monitoring and controlling
STEP 5
•Mechanism must be established by management
to allow plans to be monitored.

•This can be done through quantified plans such

as budgets and projected financial statements.
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Determine contingency plans

STEP 6 •Those quantified plans such as budgets and
projected financial statements are anchored on
assumptions.

•Management must have alternative plans to

minimize the adverse effects on the company.
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The main steps in financial planning are summarized as follows:

• First is to analyze firm’s earlier period’s performance with a view to

understand the firm’s core competencies and strengths and the effect
of these on financial parameters.
• To understand firm’s operating characteristics covering its products,
markets, competition, marketing strategies and operating risks with a
view to decide about the business portfolio and growth objective.
• Determine the investment requirements of the firm and the available
choices in view of the desired growth.
• Estimates the firm’s cash flows such as revenues, expenses and
funds requirement considering the investment and dividend decisions.
• Decides the financial sources either in debt or equity and selecting
suitable methods for raising funds.
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Create an EVENT PLANNING using the Steps in

GROUP Planning.

ACTIVITY Use this format to be presented next meeting.

Event
Event/Vision Budget/ Timeline of Contingency
Accountability
Objectives Resources Activities Plan
(Manpower)