Management pocketbooks the business planning pocketbook phần 7 pptx
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PLANNING PROCESS
7: FINANCIAL MODELLING
BALANCE SHEET : EXAMPLE
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Current assets (cash, investments, debtors, stock, prepayments)
Less
Current liabilities (tax, creditors, S/T debt, dividends)
Net working capital
Plus
Fixed assets (plant, machinery, land and buildings, IT, etc)
Less
Creditors (loans, long-term creditors, deferred tax)
Net assets
financed by
Shareholders’ (capital, retained profit, reserves)
net worth
£ m
50
(25)
15
100
(70)
45
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PLANNING PROCESS
7: FINANCIAL MODELLING
SOURCES & USES OF FUNDS
This statement shows how an organisation funded itself through the year. In particular it
shows:
● Where the money came from
● Where it went
● The duration of the funds in
● The maturity of funds out (to allow mismatch analysis)
It is self-evident that sources and uses should by and large reflect the same timescale. It
would be very foolish to borrow short-term (less than three months or even overnight) to
fund a long-term (eg: five year) project. Interest rates would probably move against you,
maturity of outflows would almost certainly occur at unfavourable times, and you might
be unable to fund the project at any given time if there was a credit squeeze.
Demonstrating that this aspect has been considered goes a long way to
instilling confidence in you and your plan.
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PLANNING PROCESS
7: FINANCIAL MODELLING
SOURCES & USES STATEMENT
Sources
● Pre-tax profit
● Depreciation
● Sales of assets
● Decrease in stocks
● Decrease in debtors
● Shares issued
● Increased loans
● Increased creditors
Applications/uses
● Dividends paid/drawings
● Tax payments
● Loan repayments
● Decrease in creditors
● Increase in stocks
● Increase in debtors
● Purchase of assets
PLANNING PROCESS
7: FINANCIAL MODELLING
SOURCES & USES
Key points - there are only four sources of funds:
● Cashflow from operations
● Asset sales
Funds will not come from anywhere else, so any funding must be explained in these
terms. Anyone looking at the plan will give especial attention to funding, as it is a lack of
this that causes problems.
This statement provides the link between the opening balance sheet, the profit and loss
for the period and the closing balance sheet.
Sources of funds are increases in liabilities (increase in borrowing/capital) or
decreases in assets (release of funds, use of cash), Applications of funds
are decreases in liabilities (repayments/payments) or increases in assets
(purchases or extra cash).
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● Capital injection
● Debt
NOTES
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PRACTICAL PLANNING
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PRACTICAL PLANNING
STRUCTURING A PLAN
When assembling a plan, you must think of those reading it - whether your colleagues,
superiors, investors, creditors or suppliers.
● Does it say what you want it to say, in the
best manner, portraying your organisation
in the best light, truthfully but giving your
readers the information that they need?
● Is all relevant information present and in an
easily digestible form?
● Is there a logical flow?
● Does it support your objectives?
Wherever possible, detail should be in
appendices so as not to detract from the key
messages, and to provide clarity and ease of reading.
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PRACTICAL PLANNING
STRUCTURING A PLAN
Typical structure of a plan would be as follows:
● Summary
● Introduction and description of the business
● Market analysis
● Internal situation analysis
● Marketing plan
● Operational plan
● Financials
● Resource requirements
● Appendices
An example using a company for illustration follows on the next few pages.
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PRACTICAL PLANNING
EXAMPLE COMPANY
The example company operates in the brewing industry.
● It has a turnover of £150 million
● It has 80 employees
● The board consists of five executive directors (family) and three non-executives
● It has just introduced a role of planner, and put in hand a planning process,
having undergone a strategic review last year
● It is based in the north of England where
its market is primarily located
The example is fictitious but
intended to illustrate a plan.
In the following pages extracts
from its plan are shown.
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PRACTICAL PLANNING
STRUCTURING A PLAN
STYLE OF SUMMARY
● The key objective is to get the readers’ attention and to make them wish to
read on
● For very large organisations, the summary may itself be quite lengthy, in
other firms quite short
● It should, however, be a stand-alone document which takes the readers by
the hand and leads them to support the conclusion that you have drawn
● Many people will read nothing else, but the rest of the plan should support
the summary, allowing them to ‘drill down’ for information
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PRACTICAL PLANNING
STRUCTURING A PLAN
BREWING COMPANY SUMMARY
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✹ Increase market share by 3% in draught beer,
5% in bottled beer and 7% in soft drinks
✹ Absolute increase in sales by 12%, improved
profits by 20% (from market penetration and
reduced costs)
✹ Replace general ledger with new package
✹ Outsource distribution
