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FINANCIAL PLANNING
Stefano Della RovereAdministration and Reporting Project AreaVIS - Volontariato Internazionale per lo Sviluppo
2010
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1° lecture – April 28, 2010
DEFINITION and PRINCIPLES
FP : COMPANY AND NGO
PCM : From the BUDGET to the cash flow
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2° lecture – April 29, 2010
TIMING AND RESOURCES MANAGEMENT
MULTIPLE DONOR PROGRAMMES
OUTPUTS AND MONITORING
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2° lecture – April 29, 2010
CASE STUDY
An NGO’s collapse
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FINANCIAL PLANNING
Financial Planning is a process whereby an economic subject, before to carry out an
investment or to spend money, analyses his own needs and goals, indentifies his risk profile and, after this analysis, choices
products or services to achieve the objectives.
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BUSINESS PLAN
PROJECT PLAN
FINANCIAL PLANNING
PROFIT or (LOSS)
ACHIEVEMENT GOALS
COMPANY
No Profit Org.
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Use of resources
Board of Directors
Administration
Financial Department
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Financial Planning in a company
Financial flows
LONG TERM (Strategic)
2 – 10 years
SHORT TERM (Operating)
1 – 2 years
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Financial Planning in a company
TASK of FP
1. Identify resources needed
2. Amount and cost of resources
3. Total costs BUDGET
4. Risks Monitoring
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Financial Planning in a company
ELEMENTS
1. Budgeting
2. Profit and Loss analysis
3. Return of capital employed
4. Capital return (dividends)
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Financial Planning in a company
OUTPUTS
1. Income/expenditure budget
2. Expected profit and loss account
3. Indicators of profit ratio
4. Cash flow
5. Capital budget
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Financial Planning in a company
Elements
BREAK-EVEN POINT
Profit and loss analysis
BEP TOTAL COST = TOTAL REVENUE
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Financial Planning in a company
TRcost&revenue
($m) (b) TC6
5
4
3 (a)2
1
100 200 300 Quantities of goods('000s)
(a) Loss area (b) Profit area = Break-even point (BEP)
TR = Total revenues TC = Total costs
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Financial Planning in a company
BEPBREAK-EVEN PERIOD
Control process
BREAK-EVEN ANALYSIS
•Previous
•Attendant
•Subsequent
•strategic
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Financial Planning in a company
Balance sheet LOSS
1 year old facts
(the past)
GAIN
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Financial Planning in a company
today
future
CASH FLOW
Profit or (loss)
PAST
Balance sheet
≠
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Financial Planning in a company
Increasing stock
Financial Planning
Overflows of cash
Financial debts
Financial management
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Financial Planning in a company
OUTPUTS
Financial Planning
CASH FLOWS
Financial management
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Financial Planning in a company
1.Liquidity measurement ratio
2.Profitability indicator ratio
3.Debt ratios
4.Operating performance ratios
5.Cash flow indicator ratios
6.Investment valuation ratios
OUTPUTS
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Financial Planning in a NGO
company NGO
Production
customers
Beneficiary
(goals)Earning or (loss)
SERVICES
(projects)marketing
capital donation
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Financial Planning in a NGO
company NGO
FINANCIAL INFORMATIONS
1. Banks
2. Creditors
3. Suppliers
4. investors
1. Donors
2. General public
3. Banks
4. Outer stakeholders
1. Management
2. Project staff
3. Board of directors
4. Inner Stakeholders
1. Management
2. Board of trustees
3. Partners
Sharing of objectives
out in out in
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Financial Planning in a NGO
FINANCIAL MANAGER Project
management
projects General activities
FINANCIAL FLOWS
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Financial Planning in a NGO
No model finance system
BASIC BLOKS
Accounting records
Internal controls
Financial planning
Financial monitoring
administrative systems and accounting system
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PCM : from budget to cash flow
LOGICAL FRAMEWORK
Project cycle management
• overall objectives
• project purpose
• Results
• activities
• preliminary planning
• Identification
• Formulation
• Financing
• Implementation
• evaluation
Financial planning
budget
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PCM : from budget to cash flow
BUDGET
• INCOME EXPENDITURE BUDGT
• CAPITAL BUDGET
• CASH BUDGET
(or cash flow forecast)KEY OF
FINANCIAL MANAGEMENT
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PCM : from budget to cash flow
BUDGET
cash flow
chronogram
BUDGET ITEM
MONTH 1
MONTH 2
MONTH 3
MONTH 4
MONTH 5
MONTH n…
IN OUT IN OUT IN OUT
Human Resour.
Equipm.
Local office
Running costs
overheads
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CASH FLOW
CAPITAL BUDGETING
• CASH IS KING
• KELLONGS on 2004
NEY CURRENT ASSET
CASH FLOW
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CASH FLOW
VARIATION INCURRED ON LIQUIDITY IN A SPECIFIC TIME,
CORRESPONDING TO THE TOTAL OF ALGEGRAIC SUM OF POSITIVE AND NEGATIVE VARIATIONS ON
CASH AND SIMILAR
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CASH FLOW
Current ratio
LIQUIDITY – def. : capacity to meet to undertaken engagements in a prompt and economic way (promptly and economically)
Quick ratio (or acid test)
CURRENT ASSETS
CURRENT LIABILITIES
PROMPT LIQUIDITY+ DEFERRED LIQUIDUTY
CURRENT LIABILITIES
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CASH FLOW
BALANCE SHEET AT DECEMBER 31, XXXX (in EURO)ASSETS LIABILITES
Immobilisations 28.000 current liabilities 35.000Financial Immobilisations 5.600 Consolidated Liabilities 22.500Prompt liquidity 5.400 Previous surplus 42.500
Deferred liquidity 36.000 Stock 25.000 Total assets 100.000 Total liabilities
100.000
Current ratio
QUICK RATIO
> 0 2 = OPTIMAL LIQUIDITY
= 0 1,25 = CRITICAL SITUATION
< 0 = CRISIS – LACK OF LIQUIDITY
> 0 PAY OFF OF SHORT TERM
= 0 CRITICAL SITUATION
< 0 CRISIS – LACK OF LIQUIDITY
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CASH FLOW
CAPITAL BUDGETING
NEY CURRENT ASSET
CASH FLOW
NCC = current assets – current liabilities = cash + stock + commercial credits – commercial credits
+ NCC = - CASH
- NCC = + CASH
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CASH FLOW
INCOME
expenditure
1. GENERAL PURPOSE INCOME or UNRESCTRICTED FUNDS
2. RESTRICTED FUNDS
3. DESIGNED FUNDS
4. ENDOWMENT FUNDS
5. GENERAL FUNDS
1. COST S FOR MATERIAL, GOODS, EQUIPMENT
2. STAFF SALARIES
3. TAX PAYMENTS
4. OTHER NEGATIVE FLOWS
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Timing, Resources, Project financial flow
Head office Regional (local) office
FUND RAISING
LOBBINGAWARENESS
CAMPAIGNES
ADVOCACY
PROJECT
BENEFICIARY
OBJECTIVES
MISSION
OBJECTIVES
FUND RAISING
MISSION
BUDGET CASH FLOW FORECAST
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Timing, Resources, Project financial flow
ANALYSIS ACTIVITIES
COSTS INCOMES
effectiveness
CAMPAIGN FUND RAISING
CORE COSTS
INCREASE OR DECREASE
UNRESTRICTED FUNDS
OR
PROJECT OVERHEADS
FIXED (fc)
VARIABLE (vc)
%
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FROM CHRONOGRAM TO THE ASSESSMENT OF
PROJECT FINANCIAL FLOWS
PCM FORMULATIONBUDGET – WORK
PLAN
project TRAVELBUS
CAR
Running costs
Purchase
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From grant through instalment to costs
funds
restricted
documents
costs
Budget Work plan
instalments
Donor’s Guidelines
Whole disposal
unrestricted
Account records
Update c.f.f
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MULTIPLE DONOR PROGRAMME
Project
450.000 euro Ngo (25%)
112.500 euro Donor 2
61.500 EURO
Donor 3
51.000 EURO
Main donor (75%)
337.500 euro
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MULTIPLE DONOR PROGRAMMEUNRESTR.
FUNDS
€ € € € € € €
Human Resources - Local staff 45.100,00 15.000,00 15.000,00 2.030,00 32.030,00 -13.070,00 - Expatriate staff 30.000,00 15.000,00 15.000,00 5.000,00 35.000,00 5.000,00Travel and Trasportation - intl. Flights 10.500,00 5.600,00 4.900,00 10.500,00 0,00 - domestic Flights 4.000,00 2.000,00 2.000,00 4.000,00 0,00Equipment 45.800,00 18.500,00 15.000,00 12.300,00 45.800,00 0,00Construction 240.000,00 100.000,00 120.000,00 25.000,00 245.000,00 5.000,00
Total Direct Costs 375.400,00 156.100,00 171.900,00 37.300,00 7.030,00 372.330,00 -3.070,00overheads 56.310,00 15.610,00 12.033,00 28.667,00 56.310,00 0,00
TOTAL 431.710,00 171.710,00 183.933,00 37.300,00 35.697,00 428.640,00 -3.070,00
surplus / (deficit)
Budget ItemTotal
BudgetMAE UE
RESTRICTED FUNDS
CaritasGeneral
Donations
Total expected
funds
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CASE STUDY – A NGO’s collapse
GBP '000 1997 1998 1999 2000 2001
Income & expenditureTotal Income 7,161 8,790 16,712 13,500 6,958Total expenditure 8,345 8,940 15,353 13,905 8,470Total surplus/(loss) -1,184 -0,150 1,359 -0,405 -1,512
ReservesRestricted funds 992 895 2,133 1,814 520Designed funds 189 145 122 59 109General Funds -450 -459 -315 -338 -606Total funds 731 581 -1,940 1,535 23
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CASE STUDY – A NGO’s collapse
THE CONCLUSIONS
1. BUILD UP GENERAL RESERVES
2. DIVERSIFY SOURCES OF INCOME
3. IMPROVE THE MANAGEMENT OF RELATIONSHIP WITH DONORS
4. BUILD UP A CULTURE OF GOOD FINANCIAL MANAGEMENT
5. ENSURE THAT MANAGEMENT SYSTEMS WERE ADEQUATE