Unit 11 Financial Planning
FINANCIAL PLANNING

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In Unit 11, we will look at financial planning, a critical aspect in the development of new ventures and the ongoing management of existing enterprises (profit and non-profit). There are two major aspects of financial planning to be considered: budgeting and breakeven analysis, more properly called cost-volume-profit (CVP) analysis. The former is dealt with in Modules 11.1, 11.2, 11.3 and 11.4, and the later in Module 11.5

The purpose of Unit 11 is to provide you with the answers the following questions:

  1. How do you determine your start-up financial requirements?
  2. How do you forecast your cash flow?
  3. How do you develop a pro forma income statement?
  4. How do you develop a pro forma balance sheet?
  5. How do you determine your breakeven point?

Module 11.1: Budgeting: An Introduction

Module 11.1 is an introduction to budgeting. In it we will discuss

  1. The foundations of budgeting,
  2. The relationship between budgeting and the operating plan,
  3. The necessary inputs to budgeting, and
  4. The outputs from budgeting

 

Module 11.2: Budgeting: Merchandising Company, Part 1

Budgeting for a merchandising company involves seven steps. They are:

  1. gather the required information about sales, operations, capital and start-up costs
  2. prepare a sales budget:
  3. prepare a purchases budget
  4. prepare operating, start-up and capital costs budgets
  5. prepare a cash budget
  6. prepare a budgeted income statement:
  7. prepare a budgeted balance sheet

We discussed the first step in Module 11.1. We will discuss steps 2, 3 and 4 in this module and remaining steps in Module 11.3

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Module 11.3: Budgeting: Merchandising Company, Part II

In Module 11.3, we will continue the discussion of the budgeting process for a merchandising concern that we began in the last module. In particular, we are going to study the last three steps in the budgeting process. These are the preparation of (i) a cash budget, (ii) a budgeted income statement and (iii) a budgeted balance sheet.

Module 11.4: Budgeting: Manufacturing Company, Part I

In this module and the next module, we will look at the budgeting process for a manufacturing company. The process is considerably more complex than budgeting for a merchandising company because of the need to plan for and forecast manufacturing requirements instead of purchases. In this module, we will focus on budgeting for the key manufacturing costs -- direct material, direct labour and manufacturing overheads

Module 11.5: Budgeting: Manufacturing Company, Part II

In Module 11.5 we will continue our look at the budgeting process for a manufacturing company. Specifically, we will consider the preparation of (i) the cash budget, (ii) the budgeted income statement and (iii) the budgeted balance sheet.

Module 11.6: Cost, Volume Profit Analysis

In Module 11.6, we are going to consider cost-volume-profit analysis (CVP) analysis. It is an extremely useful tool in a variety of circumstances. One important use is to compare various combinations of selling price and expected sales volume to determine the most profit combination of price and quantity. It can also be used to determine when a new venture will begin to earn sufficient revenue to cover its costs – breakeven analysis. Another use for CVP analysis is the comparison of various alternatives to determine which contributes the most to a venture's profits – contribution analysis.

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