Financial Management - Assignment Example

Financial management Financial planning and project management for XY Limited Annexure Gantt chart for the budgeting process Gantt chart is a form of graphic presentation in a project which shows how far work is as compared to the expected schedule (Stutely, 250). Gantt charts are used in managing projects as they are used for scheduling. It gives the project managers a quick overview of how the project has advanced (Blackwell, 170). This is the first step in preparation of a financial budget in a business plan. The company set up, application for an operational license, office innovation and system installation is expected to be completed during the first quarter (Q1) of the first year of starting up the company. These are very initial stages for starting the company after which the management will think of budgeting for the company. Staff recruitment will go on up to the third quarter of the first financial years. In the first quarter, the company will not employ many staff for fear of incurring too much expense on salaries and wages, cash which can be used to increase the operations of the company. As the company’s capacity and profit increase during the year, the company will recruit more staff to increase production and ease service delivery. System readiness and launch date will take place during the second quarter of the first financial year. Everything has to be in order before the company is launched officially. Table 1: Gantt chart for the budgeting process GANTT CHART Q1 Q2 Q3 Q4 Company setup Application for license Office renovation Staff recruitment System installation System readiness Launch date Project-managing the Budget process A budget in a business plan provides the managers with the basis for utilization of scarce resources and helps them to direct the operation of the organization in a manner which will help in the achievement of the company objectives (Blackwell, 150). It is highly recommended to have a budgeting process which will directly people will be directly involved in the ownership of the budget. To increase the importance of budgeting and implementation in the company, the management will undertake the following steps: 1. Have a preliminary meeting for the budget- the budgeting process will begin with a preliminary meeting which will bring the main managers together. In the meeting, priorities and strategies, planning process and realistic and forecasted amounts will be discussed (Stutely, 260). In the meeting, templates will be distributed to the managers asking them to prepare a proposed budget from their departments and later compile the proposals into one whole budget for the company. 2. Development of vision statement- vision statements is very important tools in any organization as they define the goals and objectives of any company. Once the vision statement for the company is developed, it will support a more rational operational and financial plan by facilitating the evaluation and re-evaluation of the operation and funding priorities in each department. With such prioritization in the company, the departments in that company will be in a position to develop a five year business plan for the operation and financing of these programs (Blackwell, 150). 3. Budget development- managers will be allowed to develop their own departmental budgets and the budgets will be consolidated into one (Stutely, 260). The differences between the proposed budgets and the actual spending limits for the company will then be discussed in this stage of budgetary process. 4. Budget discussion- the managers will then go through each budget item and pare it down to realistic amounts. At the end of the meeting, the managers will come up with a realistic forecasted budget for the new company. Annexure 2 Budget for XY Limited The budget preparation is the role of the management. The management is bestowed with the responsibilities related to planning control and leadership in the preparation of a business plan and a company budget. Table 2: Projected Profit and loss account for XY Limited Year 1 Year 2 Year 3 Year 4 Year 5 Revenues $1,976,000 $2,074,800 $2,178,540 $2,287,467 $2,401,840 Cost of sales 1,213,659 1,274,342 1,338,962 1,404,962 1,475,210 Gross Profit $762,341 $800,458 $840,481 $882,505 $926,630 Accounting 6,000 6,300 6,615 6,946 7,293 Advertising and promotion 15,000 12,360 12,731 13,113 13,506 Insurance 1,000 1,050 1,103 1,158 1,216 Utilities 4,200 4,410 4,631 4,862 5,105 Miscellaneous 2,700 2,754 2,809 2,865 2,923 Maintenance 600 612 624 637 649 Office supplies 2,700 2,754 2,809 2,865 2,923 Total operating expense 32,200 30,240 31,322 32,446 33,615 Operating Profit 730,141 770,218 809,159 850,059 893,015 Interest expense 43,199 40,274 37,059 33,524 29,639 Income taxes 17,873 30,431 41,738 53,724 66,429 Net income 669,069 699,513 730,362 762,811 796,947 XY Limited is a fast moving consumer goods company and has estimated that its revenue for the next five financial years will continue to increase given that the company will have obtained consumer awareness on all its products which will have given it brand loyalty (Blackwell, 190). Being a fast moving consumer goods company, it is expected that the company will be involved in high sales and marketing activities to market and sell the products. The company will also have to use a substantial amount for advertising and promotions as a way of creating brand awareness. As a result, cost of goods sold will increase over the five year period as the brand awareness which will have been created is expected to lead to repeat purchases and to attract more customers. The managers of the company expects the company to grow in terms of capacity and production level and that is why the managers have forecasted an increased in operating expenses over the five year period. The company also projects that its net income and operating profit will also increase over the five year period. Table 3: Projected Balance sheet Begin Year 1 Year 2 Year 3 Year 4 Year 5 Cash $33,150 $110,697 $210,697 $243,259 $293,834 $363,370 Inventory 425,000 425,000 424,781 446,020 468,321 491,737 Prepaid Leases 28,000 28,000 28,000 28,000 28,000 28,000 Total Current Assets $486,150 $563,697 $663,478 $717,279 $790,155 $883,107 Fixed Assets 33,850 33,850 33,850 33,850 33,850 33,850 Less:  Depreciation 0 4,916 9,832 14,747 19,664 24,579 Net Fixed Assets 33,850 28,934 24,018 19,103 14,186 9,271 Total Assets $520,000 $592,631 $687,496 $736,382 $804,341 $892,378 Accounts Payable 0 68,908 139,654 146,637 153,968 161,667 Long Term Debt 468,000 438,529 406,133 370,522 331,377 288,346 Total Liabilities 468,000 507,437 545,787 517,159 485,345 50,013 Owners Equity   Paid-in Capital 52,000 52,000 52,000 52,000 52,000 52,000 Retained Earnings 0 33,194 89,709 167,223 266,996 390,365 Total Liabilities & Equity $520,000 $592,631 $687,496 $736,382 $804,341 $892,378 The company will inject a cash amount of $33,150 in the beginning of its operations to fund the company processes. With the increase in the total revenue for the company over the five year period, the company expects to have an increase in its cash balances at the end of each financial year for the five years it had projected. Inventory is also projected to increase over the period with increase in the production capacity. The managers of the company predict that the company will be in a strong and healthy financial position as the total liabilities and equity is expected to increase over the five year plan. Annexure 3 Policy guidelines for Heads of Departments Cash flow and capital investment The investment policy guiding the heads of departments of XY Limited is to minimize market and credit risks while ensuring that they maintain a competitive yield on the company portfolio. Other investment polices include; Maintaining liquidity at all times in the investment portfolio Considering yield only after liquidity and risk are assured Avoiding long term investments Ensuring that all investments are approved by authorized employees before the completion of the transaction Purchasing investments with the intention of holding them to maturity As part of the company’s cash flow policy, the company will choose to buy back shares if there will be excess cash available in the medium term analysis context of the primary cash flow allocation requirements. The company will also continue it’s systematic and risk management strategy. XY Limited is a fast consumer moving Goods Company and this makes it to be a business to customer type of business. In this company, majority of the sales will be made by cash or by use of debit or credit cards. As a result, the collection process will be very simplified and this will make the company to only deal with some isolated problems like disputed debit or credit cards chargeback. Stock control and depreciation Stock control means making sure that the business ahs the right quantity of goods, in the right place and at the right time. Stock control is very important to any business organization as it ensures that the stock levels are not too high or too low. XY Limited will use First In, First Out (FIFO) as policy guidelines. This method assumes that the goods issued are those which have been longest on hand and those remaining in stock represent the latest purchase or production. This method is very effective for a fast moving consumer goods company like XY Limited. The company will use the straight line method as a policy for deprecating its fixed assets. The straight line method of depreciation will be used with an assumed salvage value of zero (Blackwell, 179). In this method of depreciation, the calculation of the depreciation expense for the fixed assets which is without the salvage value will have the cost of the assets divided by its useful life. Straight line method of depreciation is a time based method which is sued when the service life of the asset is affected primarily by the passage of time. Works Cited Beverly, Humphrey. The role of management in business. Journal of Business Management. Springer, 2008. 12-16. Print. Boyns, Trevor. Business and Management History. Cardiff Business School, 2009. 20-35.print. Edward Blackwell. How to Prepare a Business Plan: Create Your Strategy; Forecast Your Finances; Produce That Persuasive Plan. London: Kogan Page, 2011. 150-200. Print. Richard Stutely. The definitive business plan: the fast-track to intelligent business planning for executives and entrepreneurs. Harlow: Financial Times Prentice Hall. 2001. 100-250. Print Brian Finch. How to write a business plan. London; Philadelphia: Kogan Page. 2010. 180. Print Read More