Business Studies in Action: HSC Course 3rd edition
Chapter summaries
Topic 2: Financial planning and management
Chapter 4 The role of financial planning

Financial management: plan and monitor the business’s financial resources to
maximise the value of the business to the owners.

Objectives of financial management are:
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Liquidity: ability to pay short-term debts as they fall due.
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Profitability: maximise profits.
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Efficiency: minimise costs and manage assets/resources efficiently to
maximise profits.
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Growth: ability to increase business’s size in the long term.
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Return on capital: profit returned to owners as a percentage of their
capital contribution.

Financial planning is essential if a business it to achieve its goals.

The planning process involves the setting of goals and objectives, determining
the strategies to achieve these goals, identifying and evaluating alternative courses
of action and choosing the best alternatives of the organisation.

Financial planning is a continuous series of financial activities undertaken over
time. The planning cycle involves:
Business Studies in Action: HSC Course 3rd ed. Chapman, Norris, Devenish and Merritt. Chapter summary Page 1
Address present
financial position
Minimise financial
risks and losses
Plan financial
controls
The planning
cycle
Maintain record
systems
Determine financial
elements of the plan
Develop budgets
Monitor cash
flow
Interpret financial
reports

Budgets provide information in quantitative terms (facts and figures) about
requirements to achieve a particular objective.
-
Operating budget: relate to the main activities of an organisation and
may include budgets relating to sales, production, raw materials, labour,
expenses and cost of goods sold.
-
Project budget: relate to capital expenditure and research and
development.
-
Financial budgets: relate to financial data and include the budgeted
revenue statement, balance sheet and cash flows.

Cash flow budget records the expected receipts of cash (cash inflow) and
expected payments of cash (cash outflow).

Preparation of budgeted financial reports is an important part of the planning
process.
Business Studies in Action: HSC Course 3rd ed. Chapman, Norris, Devenish and Merritt. Chapter summary Page 2

Record systems must be maintained to ensure the financial data is accurate,
reliable and accessible.

Financial risk is the risk to a business of being unable to cover its financial
obligations.
Business Studies in Action: HSC Course 3rd ed. Chapman, Norris, Devenish and Merritt. Chapter summary Page 3
Business Studies in Action: HSC Course 3rd ed. Chapman, Norris, Devenish and Merritt. Chapter summary Page 4