The basis of financial management

The basis of financial management is a financial plan. A plan is an outline of the actions by which an organization intends to accomplish its goals.

A financial plan is a plan for obtaining and using the money needed to implement an organization's goals. Once a financial plan is developed and put into action, the firm's performance must be monitored and evaluated. And, like any other plan, it must be modified if necessary.

The Basis of Financial Management

Financial planning (like all planning) begins with the establish­ment of goals and objectives. Next, planners must assign costs to these goals and objectives. That is, they must determine how much money is needed to accomplish each one. Finally, financial planners must identify available sources of financing and decide which to use. In the process, they must make sure that financing needs are realistic and that sufficient funding is available to meet those needs.

THREE STEPS OF FINANCIAL PLANNING

1. Establishing Organizational Goals and Objectives. Es­tablishing goals and objectives is an important management task. A goal is an end state that the organization wants to achieve. Ob­jectives are specific statements detailing what the organization intends to accomplish within a certain period of time. 2. Budgeting for Financial Needs. A budget is a financial statement that projects income and/or expenditures over a speci­fied future period of time. Once planners know what the firm's goals and objectives are for a specific period of time - say, the next calendar year- they can estimate the various costs the firm will incur and the revenues it will receive. By combining these items into a companywide budget, financial planners can deter­mine whether they must seek additional funding from sources out­side the firm.

Most firms today use one of two approaches to budgeting. In the traditional approach, each new budget is based on the dollar amounts contained in the budget for the preceding year. These amounts are modified to reflect any revised goals, and managers must justify only new expenditures. The problem with this ap­proach is that it leaves room for the manipulation of budget items to protect the (sometimes selfish) interests of the budgeter or his or her department.

This problem is essentially eliminated through zero-base bud­geting.

Zero-base budgeting is a budgeting approach in which every expense must be justified in every budget. It can dramatically re­duce unnecessary spending. However, some managers feel that zero-base budgeting requires too much time-consuming paper­work.

3. Identifying Sources of Funds. The four primary sources of funds are sales revenue, equity capital, debt capital, and the sale of assets. Future sales generally provide the greatest part of a firm's financing.

Sales revenue is the first type of funding.

The second type of funding is equity capital, which is money received from the sale of shares of ownership in the business.

The third type of funding is debt capital, which is money ob­tained through loans. Debt capital may be borrowed for either short- or long-term use.

The fourth type of funding is the sale of assets. A firm gener­ally acquires assets because it needs them for its business opera­tions. Therefore, be a reasonable last resort when neither equity capital nor debt capital can be found. Assets may also be sold when they are no longer needed.

III. Give the English equivalents:

схема действий, достигать цели, получение и использование денег, работа предприятия, контролировать и оценивать, изменять по необходимости, определить конечную и промежуточную цели, имеющиеся источники финансирования, убедиться, финансовые нужды, проектировать доходы и расходы, определенный промежуток времени в будущем, календарный год, бюджет всей компании, нести издержки, искать дополнительные источники финансирования, традиционный подход, предыдущий год, бюджетирование нуля, ненужные расходы, значительно снизить, много бумажной работы, давать наибольшую часть финансирования, продажа доли собственности, получать посредством займов, кратковременное или длительное использование, нуждаться в активах.

IV. Complete the sentences.

1. A financial plan is a plan …

2. In the process they must make sure…

3. A goal is an …

4. A budget is a financial …

5. By combining these items into a …

6. In the traditional approach, …

7. The problem with this approach is that …

8. Zero-base budgeting is a …

V. Agree or disagree to the following.

1. A basis of financial management is a budget.

2. A plan is an outline of actions by which an organization intends to accomplish its goals.

3. A plan cannot be modified.

4. Objectives are end states that the organization wants to achieve.

5. A budget projects income and expenditures for the past.

6. Individual department budgets are never combined into a companywide budget.

7. Most firms today use one of five approaches to budgeting.

8. There are no problems with a traditional budgeting approach.

9. It’s easy and quick to made a zero-base budgeting.

10. There are 5 primary sources of funds.

VI. Choose the word that doesn’t suit the others:

1. to develop, to determine, performance, to monitor, to evaluate.

1. financial, available, sufficient, plan, traditional, realistic.

1. plan, planners, planning, to plan, problem.

VII. Continue the chain:

1. sales, revenue, equity capital, debt capital, …

1. … budgeting for financial needs, identifying sources of funds.

1. traditional approach, …, manipulations, …, new budget, …

VIII. Guess the words:

b _ _ _ _ _

_ _ a _

g _ a _

_ b j _ _ t _ _ e

p e _ f o _ _ _ n c e

_ x p _ _ d i _ _ r e

r e _ _ _ u e

IX. Answer the questions.

1. What is the basis of financial management?

1. What is a plan?

1. Can financial plan be modified?

1. How many steps of financial planning do you know?

1. What is a goal?

1. What is an objective?

1. How many approaches to budgeting do you know?

1. What are the advantages and disadvantages of each approach?

1. How many sources of funds do you know?

1. What is the difference between them?

Lesson VI

1. Read and translate the following international words without using a dictionary:

activity, affectively, planning, financial, to start, business, to finance, operation, season, special, practice, organization, ideal, period, credit, imbalance, problem, investment, manufacture, result, material, rent, peak, expansion, marketing, firm.

2. Remember the following words:

evenly - равномерно

cash flow – движение наличности

inventory – товарные запасы

wholesaler - оптовик

retailer – розничный торговец

obsolete – устаревший