FINANCIAL PLANNING Stefano Della Rovere Administration and Reporting Project Area VIS - Volontariato...

FINANCIAL PLANNING

Stefano Della RovereAdministration and Reporting Project AreaVIS - Volontariato Internazionale per lo Sviluppo

2010

1° lecture – April 28, 2010

DEFINITION and PRINCIPLES

FP : COMPANY AND NGO

PCM : From the BUDGET to the cash flow


TIMING AND RESOURCES MANAGEMENT

MULTIPLE DONOR PROGRAMMES

OUTPUTS AND MONITORING


CASE STUDY

An NGO’s collapse

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.

Stefano Della Rovere - Financial Planning

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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


8

Financial Planning in a company

Financial flows

LONG TERM (Strategic)

2 – 10 years

SHORT TERM (Operating)

1 – 2 years


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TASK of FP

1. Identify resources needed

2. Amount and cost of resources

3. Total costs BUDGET

4. Risks Monitoring


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ELEMENTS

1. Budgeting

2. Profit and Loss analysis

3. Return of capital employed

4. Capital return (dividends)


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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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Elements

BREAK-EVEN POINT

Profit and loss analysis

BEP TOTAL COST = TOTAL REVENUE


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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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BEPBREAK-EVEN PERIOD

Control process

BREAK-EVEN ANALYSIS

•Previous

•Attendant

•Subsequent

•strategic


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Balance sheet LOSS

1 year old facts

(the past)

GAIN


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today

future

CASH FLOW

Profit or (loss)

PAST

Balance sheet

≠


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Increasing stock

Financial Planning

Overflows of cash

Financial debts

Financial management


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OUTPUTS

Financial Planning

CASH FLOWS

Financial management


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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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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 MANAGER Project

management

projects General activities

FINANCIAL FLOWS


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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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BUDGET

• INCOME EXPENDITURE BUDGT

• CAPITAL BUDGET

• CASH BUDGET

(or cash flow forecast)KEY OF

FINANCIAL MANAGEMENT


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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

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