Financial plan refers to a statement estimating the amount of funds that is required and deciding its composition. The quantum of funds depends on the asset requirement of the business. The time when funds are required has to be properly judged so that it can be brought into the business without any delay.
Steps that has to be taken in financial planning are very clear
Establishing financial objectives Financial objective of the business must be clearly set. Both Short term and long term needs should be kept under consideration. Main aim must be the optimum utilization of the financial resource. The concern should take advantage of the prevailing economic conditions.
Formulating Financial Policies Financial policies deal with the procurement, administration and distribution of funds. It must take care of the present and future financial needs simultaneously. It must have clear cut plans for raising funds as well as its probable uses. Formulating procedures Procedures are formed to ensure consistency of actions. The procedure follow the formulation of policy. If it is a policy to raise short term funds from bank, then a procedure must be laid to approach the lenders and the person authorized to initiate such actions.
Providing for flexibility The financial planning should ensure proper flexibility in objectives, policies and procedures to adjust according to changing economic conditions. Changing economic conditions may offer new opportunities. The concern should be capable of taking advantage of such a situation. A rigid financial plan restricts to gain such advantages.
Financial planning and Christmas together is very difficult to enjoy. World go mad about Christmas especially European countries and Christian communities paying a very little attention towards maintaining their personal finance ending up in serious troubles ofoverspending like heavy cash outflows, negative budgets, low savings in their bank accounts and the most serious is the alarming debt amounts.
Christmas brings the season of “credit boom” with itself and creditors literally behave like poachers to engulf the needy and the unconscious. This fact has to be understood by people who do not want to end up in debt traps and restrain themselves from overspending and borrowing and land up in a finance proof section of the society.
Enjoyment and pleasure beyond your reach will only bring you worries, distress and debts for future. To synchronize enjoyment and prosperity, financial planning becomes a must.
See your wallet
It is very important to figure out available funds that can be managed to spend so that it would not harm your current status and future development. Look out for those amusements and entertainments that fits your wallet.
Budgeting
When it comes to expenses and expenditures, budgeting is indispensable. It is an art as well as a technique to allocate funds and resources for different avenues and requisites.
Budget has to be prepared strategically so that important needs and wants are fulfilled
And at the same time satisfaction can be derived out of such expenses.
Prioritize your wishes/wants
Wants and demands are unlimited and endless but resources are very scarce to meet them. Fulfillment of one leads the beginning of the other want. This is where one has to take reformative actions and prioritize their need accordingly.
Such needs and wishes can be prioritized on various parameters like estimated satisfaction, family , kids etc on level of their importance.
Spend smart
This is the time to look out for offers that are dumped on the market. Now watch out Needs in your priority list that can be matched or satisfied with the market offerings at cheap or discounted prices so that you can save some more penny.
Such market offers may come in the form of discounts, free gifts, gift vouchers and even scratch coupons.
Avoid overspending
Overspending in cakes, excess decoration, partying, sending greetings cards, gifts etc will upset the budget you initially prepared. A good idea is probably organizing get together functions instead of individual parties that would entertain you at the same time.
So plan your finances this Christmas to up live the subtle essence of this “Holy Day”
While taking a loan, interest rate is always remains an impotent criteria to consider in to. Further, in time of taking up a term loan most of the people finds difficult to decide up on what mode of interest will be ultimate beneficial for the business regards to future course of payments. Lets put few words in defining what do we exactly mean by fixed & floating rate of interest charge. Fixed rate of interest, as the terms suggests rest in a definite rate being fixed at the time of signing in to loan agreement. Again, floating rate of interest floats accordingly as per change in interest rate portfolio of the lender( commonly a bank, other non banking financial institutions etc). At the time of entering in to the contract, either of these types of interest is settled as per relation between the borrower & lender, creditworthiness of the loan seeker & prevailing rate equals or more than the prime rate as prescribed by the governing rules. However, very often people get puzzled in opting out the most appropriate payment mode that will serve best for them. Taking in to account of the following factors can be helpful in taking suitable payment option. Lets have a look..
Firstly while signing in to contract deal, take a wise look in to the current economic scenario as well as future outlook in present term. For instance, if one opts for a loan & the economic strength & stability remains intact.. can be settle of in a fixed rate as the further economic boom may boost up the interest rate to a new high.
Secondly, the present as well as future viability of the industry with in the economy in which the object of the borrower persists. If one asks for home loan, the respective rigidity of the housing industry need to be considered. Henceforth, if the demand is on, it can be presume that the rate will not fall in near future rather it may go up as long as demand dominates.
Thirdly, need to compare the current rate with the prime rate, i.e, the rate prescribed by the regulating authority. If the rate is varies too much need to have further negotiation with the lender or look out other alternative options.
Fourthly, the current REPO & Reverse REPO is also a critical criterion to opine up on mode of interest rate fixation. If there is enough liquidity in money & capital markets, it is expected to encounter a strict monitory policy. Accordingly, the banks & other financial institutions are forced to increase the interest rate to restrict the borrowing capacity of the probable buyers & encourage in savings.
Fifthly & most impotently self risk tolerance capability & anticipation upon future economic credibility plays a vital role in resorting in to either of the payment rate.
Lastly, the tenure or the loan acts in the decision making. If the tenure to too long, it is quite impossible to opine upon what can be the social as well as economical scenario after several years. In such cases, fixed rate can be preferable.
Capital is the backbone of every business. Although, in all aspects capital doesn’t necessarily mean cash, it can be comprise of cash equivalent or fixed assets that we very often find in self proprietorship or partnership firms. Also in course of conversion of any self proprietorship in to a company we can observe personal assets of the proprietor invested in the business are either taken back by the proprietor or subsidized by equivalent amount of share in the capital & of course the ownership of the property is immediately transferred to the company. However, in general terms, capital forms in finance. Now if one needs to extend his capital base due to new undertakings or expansion of existing business, selection of the best source of finance out of several other alternatives is quite crucial. In this aspect, the decision should be rest in the respective cost of each source of capital & estimated return on investment (ROI) of the new as well as expansion of the existing business. As such, if the calculated ROI is higher than the cost of capital, financing decision should be made on fixed interest bearing securities i.e, term loans, debenture etc. Further, the rate of interest is to be settled upon a negotiation between the lender & borrower in terms of financial stability, future viability & past records etc. For a company, generally a syndication among all the representative of the financial institutions & authorized representative of the company are called in. Often this entire process is undertaken by a investment bank. However, for a unstable company looking for capital reconstruction, finance through fresh issue of equities will be ideal as for these companies very often cost of capital remains at a higher side than ROI, if any. Henceforth financing through fixed interest bearing securities can be prove critical in terms of future uncertainty. Although, as I have said if ROI is greater than Cost of Capital, we will prefer for fixed charge carrying financing option, however the theory has got certain amount of limitation in terms of unforeseeable future. As we can’t sure on future, one need to take maximum possible caution in calculating future estimated cash flows. On the other hand, the theory of financial leverages also proves the fact that in the favorable scenario, financing through fixed interest bearing securities indirectly helps the equity share holders by appreciating the net worth of the company.
Whenever we plan for opening up a new venture, initial study over feasibility of the projects is quite essential. In other words, project analysis is the main theme of a successful business. However, there are several capital budgeting techniques that will help you to find out the best option. Amongst all, financial analytic prefers mostly the discounted cash flow method (or Net Present Value method) of project analysis. It is an extended version of existing net cash flow approach. Here, initial cash outflow & future cash inflows are discounted with inflationary functions. Henceforth, an estimated figure of the net profit in future terms can be prescribed. Apart from NPV, now a days Internal Rare of Return also a crucial consideration in determining project viability. This approach is fixed upon a rate that will equalizes the initial cash outlay & future inflows. Accordingly, if such rate is more than the estimated discounting factor (or inflation rate) for a particular project, that project is said to have some profitability. However a project carrying highest IRR will earn higher priority. However, in present days more emphasize is placed upon NPV or more precisely Profitability Index is considered more comprehensive than IRR on account of certain limitations. Now what is Profitability Index? It is also known as benefit cost ratio. It is calculated by taking the total discounted cash flows( including inflow & outflow) divided by the initial investment. If the index shows positive, we will take up the project. Apart from all these, another vital concern in project evaluation is the pattern or trend of cash inflows. If the flows furnishes an descending order, in spite of having a good net return or greater IRR, that project should be avoided on anticipation of further decline.
Loss is a quite tough word indeed. Although Profit & loss is a part of every life cycle whether it is living or non living.. but once loss lives, it looms larger than what profit looks. Accordingly, a provocative panic develops up among people that leeds them to further loose their feet & ultimately rests in taking wrong decisions. Henceforth, if an individual steps in to loss in either life, it is advisable not to loosing up to such loss, rather it would be apprehensive to find out the reasons behind such loss. As such I felt that I could put forward few optimistic thoughts on this behalf. As we all know, a loss incurs when respective expenses exceeds over income. However, if financial statement of a concern steps in to negative, following consideration should be taken in to account before taking any tough decision.
Firstly, calculate the net cash flow for that period in concern by adding back the non cash expenses & outstanding like depreciation, outstanding expenses etc. Accordingly,if the entire loosing amount is wipes out, no worry remains & one can really rely in running his/her venture along with the recession. However, if the substantial amount still shows in severity, we need to further place our concern in cost of operation. Now it is essential to fix up the extent of variable cost(including cost of processing) still prevails in total cost & accordingly, we need to add back again such amount to recover the loss. Consequently, if the above deviation can derive any profit or recover the loss, we may carry on our venture as long as the contribution is capable enough to cope up the fixed charges depending upon the sustainable liquidity strength.
Secondly, if the loss lives in devaluation of finished products or due to lack of working capital or raw materials i.e, due to recessionary aspect, it will be apprehensive to temporary slow down the operation or look for other financing options or apply for government grant. Also you can ask your creditors to allow some relaxations in payment schedule etc.
Finally, one need to exercise all the probable options to cope up the crisis. Filing bankruptcy is the least option remains & as such it also reflects adversely in credit report.
Hi. I am Samuel.I am an Affiliate Manager working with a leading Debt consolidation Company with 5 years of experience in the sector.Prior to that I took M.B.A degree in Finance from a Premium B-school. I have been doing projects and assignments for various multinationals on capital structure , leveraging , project planning and hence on.
I have remained associated with the "Public policy" committee for sharing my views on various laws and reforms and their benefits to the society at large .
Hence, I found it will be relevant to share with you all that I advise and share with my clients , friends and groups.
Hope that my blog will help you in coming out of your distress.
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