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Identification of financing needs - Coggle Diagram
Identification of financing needs
Planning, budgeting and forecasting
Financial planning is a continuous paces of directing and allocating financial resources and determining how an organisation will meet its strategic goals and objectives
Budgeting is an outline of a company's financial plans, normally drawn up for the next full trading year, it is the process of creating a plan to project incomes and outflows for the next full year
Financial forecasting is the projection of a company's future financial outcomes over a longer time period by examining its historical and current financial data
A long term financial forecast will take a view of the possible financial performance of the company over several years
Forecasting is a financial model of potential company performance especially in light of the strategy of the company and likely market and economic conditions over a longer time period
The first year of a financial forecast over years is likely to be based on the annual budget
A financial budget established a picture of a company's financial health, anticipate its funding requirements and presents a strategy for managing its assets, cash flow, income and expenses
Budgets are an important tool to identify, allocate and manage the resources as they are needed
Budgeting also helps in motivating employees by setting the objectives of the company, budgets may also be linked to rewards where targets are met
A budget assigns financial resources for a task for a specified period of time
One of the most important budgets is a csh budget - a cash budget sets out the cash inflows and outflows for a company over a specific period of time tonsure that there is enough cash within the company to operate and avoid financial embarrassment
The master budget shows how all the budget work together to project combined incomes and outflows fo rot ecompany
Performance against the budget is monitored and updated on a regular basis ideally each month, this enables managers to frequently analyse monthly actual results and forecast revenues and expenses for the remaining months of the year based on their real time observations of the current market conditions and revise the forecast
A static budget projects a fixed level of expected input, output and costs, it remains unchanged irrespective of the changes in volume or activity
A flexibile budget is one that adjusts with changes in volume or activity, it allows the budget to be adjusted throughout the year as company conditions change
Once a budget is prepared, financial managers use budgetary control to control and monitor the actual results against the budgeted figure. The details anaylysis of variance is conducted to evaluate the performance of the project or budget area - it allows costs and performance to are reviewed ad adjusted where needed
Controlling the budget is a critical responsibility of the budget holder of the project manager, it helps management to set financial and performance goals the evaluates progress by comparing and analysing the actual costs and perofmrnace results with the budgeted costs
A cash forecast is an estimate of cash receipts and payments for a future period that includes all the projected inflows and outflows under existing conditions
The need for cash
Every transaction results in an inflow or outflow of cash
The primary motive of holding cash is to maintain a fiancnail position in situations of certainty as well as uncertainty
Thee are 3 basic motives for holding cash
Transaction movitve
Maintaining enough cash to meet the day to day operations such as payments to vendors, petty expenditure and salaries
Cash is received in the ordinary course of company from debtors or investments
Precautionary motivate
Holding cash to meet contingencies and unexpected situations such as providing a safety net for unexpected events
Speculative motive
Using cash to take advantage of profitable investment opportunities