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FINANCIAL PLANNING Stefano Della Rovere Administration and Reporting Project Area VIS - Volontariato Internazionale per lo Sviluppo 2010.

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Presentation on theme: "FINANCIAL PLANNING Stefano Della Rovere Administration and Reporting Project Area VIS - Volontariato Internazionale per lo Sviluppo 2010."— Presentation transcript:

1 FINANCIAL PLANNING Stefano Della Rovere Administration and Reporting Project Area VIS - Volontariato Internazionale per lo Sviluppo 2010

2 1° lecture – April 28, 2010 DEFINITION and PRINCIPLES FP : COMPANY AND NGO PCM : From the BUDGET to the cash flow

3 2° lecture – April 29, 2010 TIMING AND RESOURCES MANAGEMENT MULTIPLE DONOR PROGRAMMES OUTPUTS AND MONITORING

4 2° lecture – April 29, 2010 CASE STUDY An NGOs collapse

5 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.

6 Stefano Della Rovere - Financial Planning6 BUSINESS PLAN PROJECT PLAN FINANCIAL PLANNING PROFIT or (LOSS) ACHIEVEMENT GOALS COMPANY No Profit Org.

7 Stefano Della Rovere - Financial Planning7 Use of resources Board of Directors Administration Financial Department

8 Stefano Della Rovere - Financial Planning8 Financial Planning in a company Financial flows LONG TERM (Strategic) 2 – 10 years SHORT TERM (Operating) 1 – 2 years

9 Stefano Della Rovere - Financial Planning9 Financial Planning in a company TASK of FP 1. Identify resources needed 2. Amount and cost of resources 3. Total costs BUDGET 4. Risks Monitoring

10 Stefano Della Rovere - Financial Planning10 Financial Planning in a company ELEMENTS 1. Budgeting 2. Profit and Loss analysis 3. Return of capital employed 4. Capital return (dividends)

11 Stefano Della Rovere - Financial Planning11 Financial Planning in a company OUTPUTS 1. Income/expenditure budget 2. Expected profit and loss account 3. Indicators of profit ratio 4. Cash flow 5. Capital budget

12 Stefano Della Rovere - Financial Planning12 Financial Planning in a company Elements BREAK-EVEN POINT Profit and loss analysis BEP TOTAL COST = TOTAL REVENUE

13 Stefano Della Rovere - Financial Planning13 Financial Planning in a company (a) Loss area(b) Profit area = Break-even point (BEP) TR = Total revenues TC = Total costs

14 Stefano Della Rovere - Financial Planning14 Financial Planning in a company BEP BREAK-EVEN PERIOD Control process BREAK-EVEN ANALYSIS Previous Attendant Subsequent strategic

15 Stefano Della Rovere - Financial Planning15 Financial Planning in a company Balance sheet LOSS 1 year old facts (the past) GAIN

16 Stefano Della Rovere - Financial Planning16 Financial Planning in a company today future CASH FLOW Profit or (loss) PAST Balance sheet

17 Stefano Della Rovere - Financial Planning17 Financial Planning in a company Increasing stock Financial Planning Overflows of cash Financial debts Financial management

18 Stefano Della Rovere - Financial Planning18 Financial Planning in a company OUTPUTS Financial Planning CASH FLOWS Financial management

19 Stefano Della Rovere - Financial Planning19 Financial Planning in a company 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

20 Stefano Della Rovere - Financial Planning20 Financial Planning in a NGO companyNGO Production customers Beneficiary (goals) Earning or (loss) SERVICES (projects) marketing capitaldonation

21 Stefano Della Rovere - Financial Planning21 Financial Planning in a NGO companyNGO 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 outin out in

22 Stefano Della Rovere - Financial Planning22 Financial Planning in a NGO FINANCIAL MANAGER Project management projects General activities FINANCIAL FLOWS

23 Stefano Della Rovere - Financial Planning23 Financial Planning in a NGO No model finance system BASIC BLOKS Accounting records Internal controls Financial planning Financial monitoring administrative systems and accounting system

24 Stefano Della Rovere - Financial Planning24 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

25 Stefano Della Rovere - Financial Planning25 PCM : from budget to cash flow BUDGET INCOME EXPENDITURE BUDGT CAPITAL BUDGET CASH BUDGET (or cash flow forecast) KEY OF FINANCIAL MANAGEMENT

26 Stefano Della Rovere - Financial Planning26 PCM : from budget to cash flow BUDGET cash flow chronogram BUDGET ITEM MONTH 1 MONTH 2 MONTH 3 MONTH 4 MONTH 5 MONTH n… INOUTINOUTINOUT Human Resour. Equipm. Local office Running costs overheads

27 Stefano Della Rovere - Financial Planning27 CASH FLOW CAPITAL BUDGETING CASH IS KING KELLONGS on 2004 NEY CURRENT ASSET CASH FLOW

28 Stefano Della Rovere - Financial Planning28 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

29 Stefano Della Rovere - Financial Planning29 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

30 Stefano Della Rovere - Financial Planning30 CASH FLOW BALANCE SHEET AT DECEMBER 31, XXXX (in EURO) ASSETSLIABILITES Immobilisations current liabilities Financial Immobilisations 5.600Consolidated Liabilities Prompt liquidity 5.400Previous surplus Deferred liquidity Stock Total assets Total liabilities 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

31 Stefano Della Rovere - Financial Planning31 CASH FLOW CAPITAL BUDGETING NEY CURRENT ASSET CASH FLOW NCC = current assets – current liabilities = cash + stock + commercial credits – commercial credits + NCC = - CASH - NCC = + CASH

32 Stefano Della Rovere - Financial Planning32 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

33 Stefano Della Rovere - Financial Planning33 Timing, Resources, Project financial flow Head officeRegional (local) office FUND RAISING LOBBINGAWARENESS CAMPAIGNES ADVOCACY PROJECT BENEFICIARY OBJECTIVES MISSION OBJECTIVES FUND RAISING MISSION BUDGETCASH FLOW FORECAST

34 Stefano Della Rovere - Financial Planning34 Timing, Resources, Project financial flow ANALYSIS ACTIVITIES COSTSINCOMES effectiveness CAMPAIGNFUND RAISING CORE COSTS INCREASE OR DECREASE UNRESTRICTED FUNDS OR PROJECT OVERHEADS FIXED (fc) VARIABLE (vc) %

35 Stefano Della Rovere - Financial Planning35 FROM CHRONOGRAM TO THE ASSESSMENT OF PROJECT FINANCIAL FLOWS PCM FORMULATION BUDGET – WORK PLAN projectTRAVEL BUS CAR Running costs Purchase

36 Stefano Della Rovere - Financial Planning36 From grant through instalment to costs funds restricted documents costs Budget Work plan instalments Donors Guidelines Whole disposal unrestricted Account records Update c.f.f

37 Stefano Della Rovere - Financial Planning37 MULTIPLE DONOR PROGRAMME Project euro Ngo (25%) euro Donor EURO Donor EURO Main donor (75%) euro

38 Stefano Della Rovere - Financial Planning38 MULTIPLE DONOR PROGRAMME

39 Stefano Della Rovere - Financial Planning39 CASE STUDY – A NGOs collapse

40 Stefano Della Rovere - Financial Planning40 CASE STUDY – A NGOs 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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