Reason for the use of financial forecasting
Financial focusing refers to the prediction of the future financial outcome of your company. This is essential in any business because; it help to demonstrate how much the business is financially viable especially in a new venture. This is because it helps an individual to come up with a demonstration or construct a model showing the financial expectations of a business if certain, plans, events, and strategies are implemented (Lee, 2009). In addition, it enables one to possible risks to the business thus taking the necessary precautions. Ones a business has a financial focus it will enable them to obtain a loan from banks and other money lending institutions. This is because; a majority of lenders require a financial focus before deciding to give a loan so that they can know the ability of the company or business to repay.
3 basic steps that are used to predict the financial needs of a company and ingredients of each step
Some of the basic steps that are used to predict the financial needs of a company include; gaining knowledge of the business, selecting an account, and doing own book keeping. One can gain knowledge of the business by going to school or any learning institution to be able to understand manual and computerized accounting basics. With the knowledge gained, one can be able to talk to own accountants, employees, and even bankers on what he or she needs out of his business confidently. The next step is the selection of an accountant of which can be done before the commencement of the business. A set of qualifications should be listed, and an accountant selected based on the qualifications necessary or put forth by the business. The qualifications of the required employees will then determine the amount of compensation to be given for the services offered. The third step involves book keeping where books like balance sheet, income statements and cash flow and accounting punch lists are prepared to be used in determining the future financial needs of a company.
Definition of strategic planning
A strategic plan refers to a plan that is aimed at growth of the business. In addition, it highlights the set goals and intended action to be taken to ensure growth of business as a whole (Lee, 2009).
Differences between strategic and financial planning
Strategic planning looks at the business as a whole thus analyzing ways of running the business throughout its operation. In addition, it involves the highest management level activities aimed at planned future accomplishments of the company. Within the strategic plan, it also incorporates the financial plan. On the other hand, financial plan involves analysis of the way limited funds within the organization will be used to meet the unlimited uses. In addition, financial plan forms part of the strategic plan. Strategic plan is general and broad in nature while financial plan is specific. Strategic plan has external and internal factors for instance considering the Corse of action taken by competitors; while financial plan has internal factors only thus will not consider actions taken by competitors.
Financial problems that might be encountered in an organization when implementing a strategic plan
Some of the possible problems that can be experienced by a business while implementing a strategic plan include; lack of the necessary knowledge within the organization to be able to know the activities that need to be planned. In addition, some of the possible problem that can result is the desire to do more or than it can be possible for the organization.
How to explain the use of time value of money (TVM) in business
Time value of money states that money available today can be invested to earn more money in the next coming years this concept is significant in business because while undertaking an investment, managers will have to determine if such will add value to the business (Surhone, Timpledon and Marseken, (2010). As a result, if an investment will be able to add value to the business, it will ensure that the set goals are achieved. If after calculation of time value of money, negative results are obtained, then it means that such investment will not add value thus should be ignored.
Considerations made when calculating TVM
While calculating the time value of money, some of the issues that need to be considered by the financial managers include; the enquired and desired rate of return, rate of discount, and the duration of the project.
How I can use TVM to create own, or someone else’s retirement plan
I would use the time value of money by calculating the amount I require for retirement either in a monthly on an annual basis. From then I will be able to determine the discount rate necessary for the calculation of the present value of the aimed value at the end of the chosen period. Ones the present value has been calculated, it will be equivalent to the future value I desire after the chosen number of years. On having the future value, I will then be able to calculate the contributions I have to make so that I can reach the target amount.
The aim of this paper was to come up with various answers to the essay questions and reference them suitably. As a result, the various questions have been discussed and relevant references for the same given appropriately.