Financial Planning In An Engineering Business

5104 words - 20 pages

IntroductionFinancial planning is a dynamic process that deals with allocation of various financial resources in order to meet strategic goals and objectives of the business. Financial planning involves planning for finance and planning for operations. Operation managers are concerned with sales and production whereas financial planners are interested in financing the operations nevertheless financial planning is considered to be one single process that encompasses both operations and financing.The Financial Planning process starts with strategic planning. Various strategic decisions have financial implications and therefore it is imperative that there is a strong correlation between strategic plan and budgeting. Strategic planning encompasses a process of establishing goals and objectives over short term as well as the long run. Strategic objectives and corresponding goals are developed based on a very thorough assessment of the organization and the external environment. Strategic plans are implemented by developing an Action Plan.Financial Plans (Budgets) Þ Operating Plan & THORN; Strategic Plan Þ Action PlanIn this assignment we will study financial planning process in a hypothetical company (VALUEFONES) manufacturing low cost sub £ 50 Cell phones. VALUEFONES will assemble various components parts to make cell phones. The company is incorporation with head office in London. CEO Dave who is also the Chief Finance Officer (CFO) heads the company. For this new hypothetical company VALUEFONES market research is undertaken to analyse existing market conditions. A PESTEL analysis, Porter's five-force analysis and a SWOT analysis have already been conducted and now the CEO is preparing a detailed financial planning process for the company.Financial Planning Process:The financial plan starts with enlisting various items showing the capital costs and set up costs involved in the business. The list should include expenditure such as alterations to buildings, improvements, roads, planning and legal costs and equipment costs. This will help in determining how much capital is required to initiate the business and how the business can be funded. It would also help to determine if any over draft or loans are needed.The Cash Flow ForecastThe cash flow is a useful tool for reflecting potential sales and contains details of all the income and expenditure of the business over a fixed period of time. It is used to evaluate the timing of incoming and outgoing money. A cash flow forecast can be budgeted on a monthly, quarterly or yearly basis. As the first year is the most critical for any new business venture, the first year's cash flow would typically be set out on a monthly basis.The Sales ForecastSales are the most important financial activity therefore; the Sales Forecast is made first in order to estimate sales. In order to arrive a reasonable sales forecast the past sales trend as well as various factors that influence sales are studied...

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