Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision and objectives have been set. The Financial Plan describes each of the activities, resources, equipment and materials that are needed to achieve these objectives, as well as the time frames involved.
The Financial Planning activity involves the following tasks:
- Assess the business environment
- Confirm the business vision and objectives
- Identify the types of resources needed to achieve these objectives
- Quantify the amount of resource (labor, equipment, materials)
- Calculate the total cost of each type of resource
- Summarize the costs to create a budget
- Identify any risks and issues with the budget set.
Performing Financial Planning is critical to the success of any organization. It provides the Business Plan with rigor, by confirming that the objectives set are achievable from a financial point of view. It also helps the CEO to set financial targets for the organization, and reward staff for meeting objectives within the budget set.
The role of financial planning includes three categories:
- Strategic role of financial management
- Objectives of financial management
- The planning cycle
When drafting a financial plan, the company should establish the planning horizon, which is the time period of the plan, whether it be on a short-term (usually 12 months) or long-term (2–5 years) basis. Also, the individual projects and investment proposals of each operational unit within the company should be totaled and treated as one large project. This process is called aggregation.
Use of Loan or Investment Capital
You’ve made a strong case for your business idea, its viability and your ability to execute it. So how, exactly, do you plan to use any money that lenders or investors offer you? They’ll want to know. If you’re requesting a $100,000,000 SBLC for the use of loan or credit line, for example, you might break that down into the amount that will go toward equipment such as cash registers, shelving and refrigerated display cases; purchasing inventory; and carrying out your marketing campaign. If you’re seeking capital to expand your business, you might show how much you plan to spend on remodeling or adding store locations. If you’re selling business units, state the individual price per unit.
Proposed Repayment Schedule or Exit Strategy
Potential SBLC providers will want to know how and when you intend to repay the loan or line of credit, so you should put together a proposed repayment schedule and terms. They may not agree with your suggestion, but offering proposed terms shows that you are considering the loan from the lender’s perspective. Also our financial instruments stand as a collateral to secure the loan, with the backing of our issuing banks. Be aware that we the lenders do for different percentage depending of the face value of the financial instrument and a liquidation charges to finalize the delivery process.
Potential investors will want to know when their investment will pay off and how much of a return to expect. They will also want to see that you have an exit strategy to cash out on your investment – and theirs. Do you plan to sell the business outright to another individual or company? Hold an initial public offering and go public? What will your exit strategy be if the business is failing? At what point have you determined that you will cut your losses and sell or close down, and how will you repay investors if this happens?
Remember, no one has to lend you any money or invest in your company. When they are considering doing so, they will be comparing the risk and return of working with you to the risk and return they could get from lending to or investing in other companies. You have to convince them that your business is the most promising option.
