Financial Planing and Management

Adebayo Akinwunmi

Financial Planing and Management

Adebayo Akinwunmi

Introduction

Financial Planing & Management

❖Where are you now?

❖where do you want to go? and

❖what do you need to get there?

❖The first step towards excellent financial

management for an organisation is to identify

its long-term organisational financial objectives

(where they want to go) – a seemingly simple

concept but often difficult task.

DEFINITION - FINANCIAL PLANNING AND

MANAGEMENT

❖ Financial Management means planning,

organising, directing and controlling the

financial activities of any organisation - such

as procurement and utilisation of funds of

the enterprise.

❖ It means applying general management

principles to financial resources of the

enterprise.

Financial planning is a process that includes:

1.Analysing the investment and financing

choices open to the firm.

2.Projecting the future consequences of

current decisions.

3.Deciding which alternatives to undertake.

4.Measuring subsequent performance against

the goals set forth in the financial plan.

BENEFITS OF FINANCIAL

MANAGEMENT

Good financial management will help your

organisation;

❖Make effective and efficient use of

resources;

❖Achieve objectives and fulfil

commitments to stakeholders;

❖Become more accountable to donors

and other stakeholders;

❖Gain the respect and confidence of

funding agencies, partners and

beneficiaries;

❖Gain advantage in competition for

increasingly scarce resources;

❖Prepare for long-term financial

sustainability.

PLANNING, BUDGETING AND FORECASTING

OVERVIEW

❖ Planning, Budgeting and Forecasting

(BP&F) is a three-step process for

determining and detailing an

organisation's long and short-term

financial goals.

❖ It is a method for allocating scarce

resources in-line with the strategic intent

of the business and for planning actions

to help it meet its strategic goals in

response to changing circumstances.

Planning

PLANNING: A top-down document that

defines the strategic aims of the

enterprise and high level activities

required to achieve the goals of the

organisation.

Planning for Success

Successful businesses invest time to

create and manage budgets, prepare and

review business plans and regularly

monitor finance and performance.

Business plan is never 100% accurate but

the most important thing is that there is a

dynamic plan and it should be

communicated.

Planning - A Typical Planning Cycle

1. Review the current performance against

the previous year’s performance and current

year’s targets.

2. Analyse the organisation’s successes and

failures during the previous year.

3. Identify the key objectives for the next

financial year and change or re-establish

longer-term planning.

4. Identify and refine the resource implications

of the review and build a budget.

5. Define the new financial year's profit-and-

loss and balance-sheet targets.

6. Conclude the plan.

Review it regularly - for example, on a monthly

basis - by monitoring performance, reviewing

progress and achieving objectives.

Planning - Content of an Annual Financial Plan

This should be a clear financial picture of

As-is -and To-be.

Annual plans should include:

❖ An outline of changes to be made in the

company;

❖ Potential changes in industry, market,

customers and competition;

❖ Objectives and goals for the financial

year;

❖ Key Performance Indicators;

❖ Operational changes;

❖ Information about management and

staff;

❖ Financial performance and forecasts;

❖ Details of business investments.

Benefits of Financial Plan

❖ Formal and well-structured plan focuses

Management’s attention on the direction

of the company’s performance and

provides targets that ensure business

growth.

❖ Planning is most effective when it's an

ongoing process.

❖ It guarantees a proactive approach to

situations where necessary, rather than

a reactive approach to events after they

have occurred.

Budgeting

Budgeting is an effective way to control

cashflow.

It makes allowances for investments in

worthwhile opportunities at given times

Budgeting - Benefits

Budgeting helps organisation is:

❖Controlling finances

❖Ensuring continuous funding is available for

current commitments as and when due as well

as prospective investments

❖Creating a confident approach to decision

making and achievement of objectives.

❖Manage and allocate resources effectively to

projects according to priority rather than just

preference.

❖Accomplish set objectives and monitor

organisational performance.

❖Improve decision-making thereby, planning

better for the future.

❖Identify problems before they occur - such as

the need to raise finance or cash flow

difficulties.

❖Improve employees’ motivation and moral

Budgeting & Forecasting

Outlines how company’s revenue are generated and expensed. However, It is not a forecast.

A forecast is a prediction of the future whereas a budget is a planned outcome of the future - defined by the business

plan that the organisation wants to achieve.

Once a budget is complete, it should be followed as strictly as possible. However, there should be some flexibility to

allow the company take advantage of new and unanticipated opportunities in the future.

Organisations should adopt incremental rolling budget techniques, to ensure continuous budgeting based on previous

year’s budget.

If the budget is based on the company’s business plan, a financial action plan will be derived from the process.

The organisation can measure deviation in current performance from expected performance (the budget) and control

measures can be initiated appropriately.

A company’s budget can serve as:

Business forecasting tool, which is a critical step in creating a business plan. It compels companies to continually think

about their future.

Business forecast helps to tracks the expected performance, so that timely decisions can be taken to address shortfalls

against target, or maximise an emerging opportunity.

The point of forecasting is to gain insight into the future despite uncertainty.

The most common business forecasting methods include regression analysis, moving average and Monte Carlo

simulation.

CRITICAL AREAS OF FOCUS TO IMPROVE PLANNING, BUDGETING AND FORECASTING

PROCESSES

1. Create the right organisational culture and ways of

working.

• Focus on the 360-degree leadership Approach.

• Be clear on decision-making responsibilities.

• Make all stakeholders accountable and incentivise

appropriately.

2. Integrate the process, leveraging high quality data

goals.

• Align value drivers on an enterprise-wide basis.

• Establish and agree consistent measures of success.

• Instil better data governance within the company.

• Incorporate external data where appropriate.

• Utilise rolling and incremental forecasts.

3. Deploy effective and scalable technology solutions.

• Be familiar with evolving PB&F technology market where

tangible benefits can be delivered.

• Understand technology is an enabler, not a fix

technology.

• Be clear on the business case for the investment.

• Achieve competitive advantage.

Typical Content of Planning Document

Ranging from simple to complex, a

completed financial plan will contain a series

of financial statements providing an

organised view into the data and

assumptions gathered during the financial

process, and forward projections made from

that data.

Typical content will include:

❖ Assets

❖ Projected Cash Flow

❖ Expenses

❖ Income Tax

❖ Amortisation

❖ Reports Related to Risk and Risk Mitigation

❖ Assumptions and Summary

Financial Management

ROLES OF EXECUTIVES IN FINANCIAL MANAGEMENT

“How many famous chief financial officers can you

name? I doubt they trip off the tongue like Buffett, Bezos

or Blankfein, but perhaps it is now time to look beyond

these CEOs and give the CFO more of a starring role”.

John O’Mahony | Head of EPM, KPMG UK

CTOs, CIOs, CEOs, COOs, et al need to have a more

starring role in company’s financial planning beyond

departmental contributions.

Regardless, it is very unlikely that the CEO will

personally facilitate Planning, Budgeting and

Forecasting process (PB&F).

The CFOs need to exercise sufficient control to ensure

integrity behind the numbers that result from the PB&F

process.

❖ All C -suite executives are strategic leaders

in the organisation and should not limit

their interest to their specialisations only .

❖ How do they do that while at the same time

gaining traction as a strategic leader in the

business?

❖ While a degree in finance is not required,

good knowledge of financial management

is critical for C-suite executives.

❖ Good financial Management is the result of

having confidence that all pillars are being

looked after to the extent that your

processes are devoid of gaps.

❖ C-suite executives can be actively involved

in the company’s financial performance by

focusing on four specific activities:

Timely and Accurate Recording and Reporting Systems

1. Process Management Skills – Application of

knowledge, skills, tools and systems to define,

visualise, measure, control, report and improve

processes to meet a specific goal.

2. Financial Statement Expertise – Refers to

knowledge of the income statement, balance

sheet and cash-flow statement. Understanding

that gross margins, overhead costs, assets and

liabilities are not just terminologies but are vital

indicators of the company’s well-being. They

explain how money moves through the

organisation and here are important to its

success. It’s essential to have a good grasp of

each element and how they connect.

3. Key Performance Indicators/Dashboard – an

understanding of the KPI’s across different

sections of the organisation will ensure financial

planning process is carried out with full

awareness and in harmony with KPIs.

Business Planning and Business Growth

1.Financial Forecasting – Analytics, market

research and use of financial statements

all help to project the company’s future

finances. This data is key to strategic

planning

2.Investment Analysis – Assessing the

potential profitability of a long-term

investment. What will the return on

investment (ROI) be? For example, to

build a new plant, the organisation needs

to determine the cost to build, revenues

from the building project, and costs

related to those revenues. It is also

important to be prepared for potential

unexpected costs, such as issues with

construction or other unforeseen

challenges.

Governance and Controls

1. Compliance – Adequate understanding

of Controls, Governance and regulatory

filings will also be significant to financial

management. Awareness and application

of laws, regulations and policies in terms of

accounting and auditing as well as rights

and responsibilities of stakeholders, rules

and procedures that govern corporate

decision making are the foundation of

effective financial management.

2. Risk Management – Risk Management

is a very important area for boards and

corporations and is usually headed by the

risk committee. C-suite executives would

make invaluable contributions to the Risk

Management strategy.

Tools and Accelerators

❖ Planning requires historical data

and ability to forecast or predict

future based on several inputs

❖ Several Software are available

in the market today

❖ Always look for the “best fit” and

“not best in class”

❖ Tools with “Industry Best

Practise” are usually well

thought through and reduces

implementation headaches

Some Common Tools

CONCLUSION

With a solid understanding of these

concepts, C-suite executives will be in a

position to make informed decisions, paving

a clear path toward financial success.

Planning Budgeting and Forecasting

process develops a seasoned financial plan,

that acts as an “armour” in prospective

financial year. PB&F process is a guide not

the ultimate destination. More effort should

be invested in executing the process rather

than designing it.

C -suite executives are the “brains” of the

organisation. The PB&F process is vital

enough to require active participation from

all the “brains” in the company.

Executive should also acquire the necessary

skills to be relevant to the PB&F process.