2.1Financial Planning1. Role of financial planningâ¢to provide availability of funds and resources to achieve business goals2. Strategic role of financial planningâ¢is the process of setting up objectives throughout the business and deciding what resources will be needed to achieve these objectives3. Financial managementâ¢has a strategic role in the sense that this planning is taken place in a dynamic environment-5 Objectives of Financial Planning1. Liquidityâ¢ensures business can pay its short term debts2. Efficiencyâ¢to achieve lower costs by getting greater output from inputs such as labour and machineryâ¢lower costs that result from increased output from the same amount of input3. Growthâ¢to increase the value of the business by expanding the businessâ¢example: acquisition, which is meant by buying another businessâ¢growth is needed to attract investors4. Return on capitalâ¢increase the return from the use of resources such as land and labour5. Profitabilityâ¢owner expects a competitive return in their investment from the risks they takeâ¢these type of returns are called profitability-Planning cycleâ¢refers to the continuous series of financial activities that take place in a business that ensures a business adapts to a changing environment1.
Addressing the present financial positionâ¢Concerned with the assessment of the business's financial resources, particularly its cash flowsâ¢Cash flows is the movement of cash inflows and outflows of the business2. Determining the financial element of the business planâ¢Concerned with providing the resources needed to implement the plan3. Developing budgetsâ¢Budgets provide specific details for the planâ¢Shows where money will come from and what it will be spent on4. Cash flowsâ¢Most important aspect of the planning cycleâ¢It is the movement of cash inflows and outflows of the business5. Financial reportsâ¢Standardized reports that summarize the financial activities of the business that are prepared for stakeholdersâ¢These reports include: balance sheet, revenue statement and statement of cash flows6. Interpretationâ¢Standardized reports are general reportsâ¢General reports need to be...