Financial Planing and Management. Adebayo Akinwunmi

Transcription

1 Financial Planing and Management Adebayo Akinwunmi

2 Financial Planing and Management Adebayo Akinwunmi

3 Introduction Financial Planing & Management Where are you now? where do you want to go? and what do you need to get there? The first step towards excellent financial management for an organisation is to identify its long-term organisational financial objectives (where they want to go) a seemingly simple concept but often difficult task.

4 DEFINITION - FINANCIAL PLANNING AND MANAGEMENT Financial Management means planning, organising, directing and controlling the financial activities of any organisation - such as procurement and utilisation of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. Financial planning is a process that includes: 1.Analysing the investment and financing choices open to the firm. 2.Projecting the future consequences of current decisions. 3.Deciding which alternatives to undertake. 4.Measuring subsequent performance against the goals set forth in the financial plan.

5 BENEFITS OF FINANCIAL MANAGEMENT Good financial management will help your organisation; Make effective and efficient use of resources; Achieve objectives and fulfil commitments to stakeholders; Become more accountable to donors and other stakeholders; Gain the respect and confidence of funding agencies, partners and beneficiaries; Gain advantage in competition for increasingly scarce resources; Prepare for long-term financial sustainability.

6 PLANNING, BUDGETING AND FORECASTING OVERVIEW Planning, Budgeting and Forecasting (BP&F) is a three-step process for determining and detailing an organisation's long and short-term financial goals. It is a method for allocating scarce resources in-line with the strategic intent of the business and for planning actions to help it meet its strategic goals in response to changing circumstances.

7 Planning PLANNING: A top-down document that defines the strategic aims of the enterprise and high level activities required to achieve the goals of the organisation. Planning for Success Successful businesses invest time to create and manage budgets, prepare and review business plans and regularly monitor finance and performance. Business plan is never 100% accurate but the most important thing is that there is a dynamic plan and it should be communicated.

8 Planning - A Typical Planning Cycle 1. Review the current performance against the previous year s performance and current year s targets. 2. Analyse the organisation s successes and failures during the previous year. 3. Identify the key objectives for the next financial year and change or re-establish longer-term planning. 4. Identify and refine the resource implications of the review and build a budget. 5. Define the new financial year's profit-andloss and balance-sheet targets. 6. Conclude the plan. Review it regularly - for example, on a monthly basis - by monitoring performance, reviewing progress and achieving objectives.

9 Planning - Content of an Annual Financial Plan This should be a clear financial picture of As-is -and To-be. Annual plans should include: An outline of changes to be made in the company; Potential changes in industry, market, customers and competition; Objectives and goals for the financial year; Key Performance Indicators; Operational changes; Information about management and staff; Financial performance and forecasts; Details of business investments.

10 Benefits of Financial Plan Formal and well-structured plan focuses Management s attention on the direction of the company s performance and provides targets that ensure business growth. Planning is most effective when it's an ongoing process. It guarantees a proactive approach to situations where necessary, rather than a reactive approach to events after they have occurred.

11 Budgeting Budgeting is an effective way to control cashflow. It makes allowances for investments in worthwhile opportunities at given times

12 Budgeting - Benefits Budgeting helps organisation is: Controlling finances Ensuring continuous funding is available for current commitments as and when due as well as prospective investments Creating a confident approach to decision making and achievement of objectives. Manage and allocate resources effectively to projects according to priority rather than just preference. Accomplish set objectives and monitor organisational performance. Improve decision-making thereby, planning better for the future. Identify problems before they occur - such as the need to raise finance or cash flow difficulties. Improve employees motivation and moral

13 Budgeting & Forecasting Outlines how company s revenue are generated and expensed. However, It is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome of the future - defined by the business plan that the organisation wants to achieve. Once a budget is complete, it should be followed as strictly as possible. However, there should be some flexibility to allow the company take advantage of new and unanticipated opportunities in the future. Organisations should adopt incremental rolling budget techniques, to ensure continuous budgeting based on previous year s budget. If the budget is based on the company s business plan, a financial action plan will be derived from the process. The organisation can measure deviation in current performance from expected performance (the budget) and control measures can be initiated appropriately. A company s budget can serve as: Business forecasting tool, which is a critical step in creating a business plan. It compels companies to continually think about their future. Business forecast helps to tracks the expected performance, so that timely decisions can be taken to address shortfalls against target, or maximise an emerging opportunity. The point of forecasting is to gain insight into the future despite uncertainty. The most common business forecasting methods include regression analysis, moving average and Monte Carlo simulation.

14 CRITICAL AREAS OF FOCUS TO IMPROVE PLANNING, BUDGETING AND FORECASTING PROCESSES 1. Create the right organisational culture and ways of working. Focus on the 360-degree leadership Approach. Be clear on decision-making responsibilities. Make all stakeholders accountable and incentivise appropriately. 2. Integrate the process, leveraging high quality data goals. Align value drivers on an enterprise-wide basis. Establish and agree consistent measures of success. Instil better data governance within the company. Incorporate external data where appropriate. Utilise rolling and incremental forecasts. 3. Deploy effective and scalable technology solutions. Be familiar with evolving PB&F technology market where tangible benefits can be delivered. Understand technology is an enabler, not a fix technology. Be clear on the business case for the investment. Achieve competitive advantage.

15 Typical Content of Planning Document Ranging from simple to complex, a completed financial plan will contain a series of financial statements providing an organised view into the data and assumptions gathered during the financial process, and forward projections made from that data. Typical content will include: Assets Projected Cash Flow Expenses Income Tax Amortisation Reports Related to Risk and Risk Mitigation Assumptions and Summary

16 Financial Management

17 ROLES OF EXECUTIVES IN FINANCIAL MANAGEMENT How many famous chief financial officers can you name? I doubt they trip off the tongue like Buffett, Bezos or Blankfein, but perhaps it is now time to look beyond these CEOs and give the CFO more of a starring role. John O Mahony Head of EPM, KPMG UK CTOs, CIOs, CEOs, COOs, et al need to have a more starring role in company s financial planning beyond departmental contributions. Regardless, it is very unlikely that the CEO will personally facilitate Planning, Budgeting and Forecasting process (PB&F). The CFOs need to exercise sufficient control to ensure integrity behind the numbers that result from the PB&F process.

18 All C -suite executives are strategic leaders in the organisation and should not limit their interest to their specialisations only. How do they do that while at the same time gaining traction as a strategic leader in the business? While a degree in finance is not required, good knowledge of financial management is critical for C-suite executives. Good financial Management is the result of having confidence that all pillars are being looked after to the extent that your processes are devoid of gaps. C-suite executives can be actively involved in the company s financial performance by focusing on four specific activities:

19 Timely and Accurate Recording and Reporting Systems 1. Process Management Skills Application of knowledge, skills, tools and systems to define, visualise, measure, control, report and improve processes to meet a specific goal. 2. Financial Statement Expertise Refers to knowledge of the income statement, balance sheet and cash-flow statement. Understanding that gross margins, overhead costs, assets and liabilities are not just terminologies but are vital indicators of the company s well-being. They explain how money moves through the organisation and here are important to its success. It s essential to have a good grasp of each element and how they connect. 3. Key Performance Indicators/Dashboard an understanding of the KPI s across different sections of the organisation will ensure financial planning process is carried out with full awareness and in harmony with KPIs.

20 Business Planning and Business Growth 1.Financial Forecasting Analytics, market research and use of financial statements all help to project the company s future finances. This data is key to strategic planning 2.Investment Analysis Assessing the potential profitability of a long-term investment. What will the return on investment (ROI) be? For example, to build a new plant, the organisation needs to determine the cost to build, revenues from the building project, and costs related to those revenues. It is also important to be prepared for potential unexpected costs, such as issues with construction or other unforeseen challenges.

21 Governance and Controls 1. Compliance Adequate understanding of Controls, Governance and regulatory filings will also be significant to financial management. Awareness and application of laws, regulations and policies in terms of accounting and auditing as well as rights and responsibilities of stakeholders, rules and procedures that govern corporate decision making are the foundation of effective financial management. 2. Risk Management Risk Management is a very important area for boards and corporations and is usually headed by the risk committee. C-suite executives would make invaluable contributions to the Risk Management strategy.

22 Tools and Accelerators Planning requires historical data and ability to forecast or predict future based on several inputs Several Software are available in the market today Always look for the best fit and not best in class Tools with Industry Best Practise are usually well thought through and reduces implementation headaches

23 Some Common Tools

24 CONCLUSION With a solid understanding of these concepts, C-suite executives will be in a position to make informed decisions, paving a clear path toward financial success. Planning Budgeting and Forecasting process develops a seasoned financial plan, that acts as an armour in prospective financial year. PB&F process is a guide not the ultimate destination. More effort should be invested in executing the process rather than designing it. C -suite executives are the brains of the organisation. The PB&F process is vital enough to require active participation from all the brains in the company. Executive should also acquire the necessary skills to be relevant to the PB&F process.