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FREE online courses on Refresher on Financial Planning - Chapter 5 - Summary

 

Financial Planning is a continuous process that flows with strategic decision making. The Operating Plan and the Financial Plan will both support the Strategic Plan. The best place to start in preparing a budget is with sales since this is a driving force behind much of our financial activity. However, we have to take into account numerous factors before we can finalize our budgets.

 

Budgeting should be flexible, allowing modification when something changes. For example, the following will impact budgeting:

 

·         Life cycle of the business

·         Financial conditions of the business

·         General economic conditions

·         Competitive situation

·         Technology trends

·         Availability of resources

 

Budgeting should be both top down and bottom up; i.e. upper level management and middle level management will both work to finalize a budget. We can streamline the budgeting process by developing a financial model. Financial models can facilitate "what if" analysis so we can assess decisions before they are made. This can dramatically improve the budgeting process.

 

One of the biggest challenges within financial planning and budgeting is how do we make it value-added. Budgeting requires clear channels of communication, support from upper-level management, participation from various personnel, and predictive characteristics. Budgeting should not strive for accuracy, but should strive to support the decision making process. If we focus too much on accuracy, we will end-up with a budgeting process that incurs time and costs in excess of the benefits derived. The challenge is to make financial planning a value-added activity that helps the organization achieve its strategic goals and objectives.

 

 
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