TABLE OF CONTENTS Financial planning is a fairly generic term which covers a range of different activities, from the initial estimating of resource requirements and associated costs, forecasting sales revenue, identifying on-going operating costs, and preparing the budgetary plans which combine the former information. It also involves cash-flow forecasting to ensure that there are no gaps between income and expenditure, analysing break-even levels, and forecasting profits.
It is because the process draws together all of the other aspects of planning the business, and then expressing those plans in monetary form, that it is so important to prepare correctly, as it is the primary point of interest for bankers and any other potential lenders or investors, and is usually the first thing they will focus on when reading a business plan. If the financial forecasts do not look to be sufficiently detailed or realistic then it is highly likely that the business plan will be rejected or at least referred back for more information.
The objective of this chapter is to describe the various processes involved, and the reasoning behind them, so that the reader is in a position to prepare the necessary information for his or her own business plan, in particular the budgetary plan, cash-flow forecasts, and break-even analysis. As part of the process we shall also be defining and explaining some of the financial terminology which it is essential for the owner-manager to understand.
There are five key documents with which we are concerned, and all of which are...
