Financial Planning

Developing Financial Planning

A financial plan is a course of action obtaining a using the money that is needed to implement the goals of the business
organization. Once the plan is in action, the performance of the organization is monitored and evaluated in terms of the attainment to
the goal. Just like any other plan, financial planning should be flexible and realistic.
 Here are three steps involved in financial planning:
1. Establishing Objectives. This should be clear and specific to determine their cost and budget. Objectives should be realistic.
That is, they can be supported by available resources in terms of human, material and financial inputs. Otherwise, such
objectives are not attainable.
2. Budgeting. A budget is an estimated or projected program of expenses and incomes over the specified period of time.
Incomes come from estimated sales while expenses are based on fixed and variable costs of operations of the business, like
salaries, rentals, materials, taxes, payments of water, electricity and others.
3. Identifying sources of funds. There are four primary types of financing a business enterprise: a) income from sales; b)
owner’s money and sale of shares of stock; c) borrowings from friends, relatives and financial institutions, and issuing bonds,
and; d) Sale of some property of the enterprise of the last resort.
Financial Projections
• The Financial Projections quantity the results of the marketing, technical, management, taxation and financing studies.
• The projections estimate the future profitability, cash requirements and anticipated cash sources, and expected financial
condition.
• The major assumption used preparing the estimates should be clearly stated, as the estimates are highly contingent on the
underlying assumptions.
• The sales cost of sales, expenses and cash collections and payments should be clearly establish.
Projected Financial Statements
• The Projected Income Statement (Exhibit 1) list down the various items of revenues or incomes, and the corresponding
costs and expenses, in order to arrive at the net profit on a periodic basis (annual, quarterly, or even monthly)
• The Projected Cash Flow Statement is similarly to a tentative cash budget. It details on a periodic basis, the expected
cash receipts a payments. The financial requirements may be broken down to show the peso and the foreign currency
Components.
• The Projected Balance Sheet (Exhibit 4) shows the expected resources (as land and machinery) to be used by the project,
and the manner in which they will financed (as through borrowings).
Periods or Date Covered
1. Projected Income Statement – Covers the first few years of normal operations.
2. Projected Cash Flow – Covers the (a) pre-operating period when there are already cash transactions, and (b) the first years of
operations covered by the related projected income statement.
3. Projected Balance Sheet – May be of at least two dates: as of the start of normal operations, and as of the last day covered by
the projected income and cash flow statements.
Financial Evaluation
1. Operate profitably, withstand adversities, and generate cash, as measured by the:
• Profit break-even point – volume and selling price
• Cash break-even point – volume and selling price
• Income statement on per unit basis
• Costs and profit as a percentage (%) of sales
• Exposure to tariff charges
• Exposure to foreign exchange fluctuations
• Ability to borrow
2. Generate return on the investments of the financiers, as measured by the:
• Cash payback period
• Accounting rate return on the stockholder’s investment
• Discounted cash flow rate of return on the investment
3. Protect the creditors and service the debts, as measured by the:
• Debt service break-even point sales volume
Break-even Point Analysis
The break-even point technique is used in the analysis of the profit, cash generation, and debt-service ability.
 1. Profit break-even point. The purpose of this analysis is to find out the level of sales volume (quantity), or the selling price
per unit, at which a project will just break-even (no gain, no loss).
2. Cash Break-even point. The BEP may also be used to establish the level of sales volume or the selling price per unit at
which the project will generate just enough cash for operations.
Organizational and Management Planning
Questions to answer in preparing a management plan:
1. Who are the members of the management team?
2. What are the skills, education and experience of each?
3. What style of management will be used?
4. How will the personnel be motivated?
Choosing the people to work with you,
How do you determine your employee requirements? The following guidelines may be useful.
1. First of all, list down the different tasks that have to be done in the business. Some preliminary questions to ask are:
• Marketing – who will sell the products? Who will deliver the products to the buyers? To the distributors? Who will
handle the promotion and advertising? Who will take care of the customers after the products have been sold?
• Production – who will make the products or deliver the service? Who will operate the equipment? Who will
maintain them? Who will take charge of the inspection? Who will keep track of raw materials stocks and finished
product inventory?
• Finance – Who will keep the records? Who will do the accounts? Who will prepare the weekly payroll? Who will
collect the receivable and settle payables? Who will hold the pretty cash?
• Administration – who will take care of ordering supplies, preparing sales contracts and renewing business permits?
Who will handle personnel records? Who will handle business communications, inquiries and other administrative
matters?
2. From the list of task, cross out the tasks that you are taking for yourself. The tasks that remain in the list are those for which you
will hire other people. Translate the task into job designation or titles.
3. Next, for every position, list all the qualifications required in terms of skill, education and training, experiences and personal
characteristics. Include age, gender and other requirements which you feel important for a certain job to be performed well.
4. It is also advisable to determine salaries and wages to be paid for every position you have. Applicants need to know how much you
are willing to pay them.
5. Once you have done Nos. 1 to 4 above, you can begin the process of recruiting, screening and selecting the people to work with you
in your new business.
BUSINESS ORGANIZATION
An organization is a group of two or more persons who work together to attain a common set of goals. A sari-sari store owned and
managed by a family is an organization. In the same manner, San Miguel Corporation is an organization.
Here is an example of a simple organizational chart:

Manager-Owner

Office Supervisor Sales Supervisor

Accountant Clerk Messenger Salesman 1 Salesman 2 Salesman 3

Will your organization be a sole proprietorship? Or would you like to take a partner? Or it may be that you prefer to form a
corporation. This is for you to decide.
1. Proprietorship – this is a business owned by only one person. It is the simplest organization to form. Most businesses,
including large ones, started as a sole proprietorship.
2. Partnership – it is formed when two or more partners come together to be joint owners of a business. A partnership allows
the pooling of resources (money and other business assets) and talents (skills, experience, management know-how). All the
partners share profits equally unless otherwise stated in the partnership agreement.
 3. Corporation – a corporation or a company involves five or more persons owning the business. A corporation is a legal
person in the eyes of the law. It is called a legal person because the laws allow it to do most business acts that a natural
person can do. As a legal person, the corporation:
- has legal rights and responsibilities
- can sue and be sued in court
- can own and dispose property
- can enter into contracts
4. Cooperative – it is a group enterprise. It is made up of number of producers, traders or consumers who want to produce or
trade as a group so that they may avail themselves of economies of scale which individually they will not be able to obtain.
Cooperative is registered with Cooperative Development Authority (CDA) cooperatives may apply for tax-exemption. However, its
members, to whom the profits of the cooperative ultimately go, have to pay income taxes.
 Sole Proprietorship
Advantages:
• Allows you to be your own boss
• Easy to start
• Allows you to keep all profits
• Gives you complete control
Disadvantages:
• Makes you liable to all the risks and losses
• Has limited access to capital and other resources
• Demands long hours of hard work on your part
• Does not allow sharing of responsibility
 Partnership
Advantages:
• More money available
• More heads contribute to the success of the business
• Losses are shared among the partners
• Risk are also shared
• Planning and problem solving are participatory
Disadvantages:
• Control of business is shared and is thus limited
• Profits are shared and are thus reduced
• Consequences of a poor decision made by a partner affect other partners
• Liability of debts is unlimited
• Property invested becomes joint property of all
 Corporation
Advantages:
• Capital is easily raised
• Liability for debts of the business is limited to your share of capital
• Tasks need not be done by the owners but by hired employees
Disadvantages:
• Major decisions cannot be done by the owners without the approval of the board of directors.
• Corporate and individual profits in the form of dividend are taxed separately (double taxation)
• More expenses involved
• More rules and regulations to comply with
Registering your Business
• A business has to be registered to be able to operate officially/legally. A registered business can enter into business
contracts and go into export. If a customer or a supplier violates an agreement with your business, you need to be
registered in order to sue for breach of contract.
• When selling to institutional buyers. You need to issue official invoices and receipts.
• Lastly, you need to be registered in order to avail of most incentives and assistance offered by the government.
 Where to Register your Business
LEGAL FORM WHERE TO REGISTER
Bureau of Domestic Trade, Department of Trade and
Sole Proprietorship Industry (BDT-DTI)

Partnership Securities and Exchange Commission (SEC)

Corporation Securities and Exchange Commission (SEC)

Cooperative Cooperative Development Authority (CDA)

BUILDING THE AGROFORESTRY ENTERPRISE

1. Market Research and Market Development
- defined as the systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and
services.
Marketing research serves to provide answers to many questions including those on:
-market potentials, market share, market characteristics, sales, business trends, short range forecast, competitive products,
long range forecast, and existing products.
The marketing research process:
Marketing research process is composed of five steps, namely:
1. Definition of the problem
The first steps towards solving the problem are a recognition that such problem exist. A problem according to
Johnston and from ton, maybe define as “an identifiable situation which is perceive by the decision-maker as a potential source of
dissatisfaction, and for which preferable alternatives exist.
2. Situation Analysis.
Once the problem has been clearly identified, a situation analysis must be conducted. The exercise is actually an
informal investigation of the available information which may further define the problem and indicate what additional information is
required.
3. Obtaining Primary Data
After determining what the additional information is needed, a formal research will be conducted to obtain primary
data requirements. There are three methods of obtaining primary data. They are (1) observation (2) survey, and (3) experiment.
 Under the observational method, primary date is gathered by observing actions of the respondents. The observational method
can be highly accurate. The respondents are not aware that they are being observed, so they act naturally. Interpretation of
data. The next logical step to do after data collection is interpretation. This brings out the meaning of data, or converting mere
data into information. Data analysis is made by using either one or two steps, namely: (1) test of significance, and if still
required (2) explaining observe.
2. Production and product development
- Production in contemporary times really refers to creation of products or services and conversion or transformation of
resources into a finished product (goods) or services needed by the market or consumers.
3. Financial Management
- Financial management refers to activities that are concerned with securing money and using it properly. The entrepreneur as
financial manager must determine the best ways to raise money. However, it is also important that the money should be used
effectively in realizing the goals of the enterprise.
4. Staff / Personnel Management
SUSTAINING THE VIABILITY OF THE
ENTERPRISE
A. Marketing and market development
B. Capital build up
C. Continuous project design and development
D. Markets and sustain linkage and network
E. Business evaluation
 Community Entrepreneurship for Agroforestry Enterprise Development
Issues in Agroforestry Entrepreneurship
A. Legal Issues
- Impediments in the harvesting of agroforestry products.
B. Entrepreneurial Support System
- Legal support system (pertinent laws and policies that encourage entrepreneurial endeavor).
- Financial support system (access to credit/microfinance)
- Technical support system (availability of institutions/organization where entrepreneurs can get support in terms of
designing and coming up a product and linking their product to market).
- Marketing Information System
C. Intrapreneurship
D. Other Issues
- Lack of capital
- Level of technology
- Availability and stability of supply of raw materials used to be a product
- Political issues