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Importance of financial planning, budgeting as a tool

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The need to identify shortages and surpluses e.g. cash budgeting; implications of failure to finance adequately; overtrading.

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One of the more important reasons for a large percentage of new small business failures relates to the lack of cash, the lack of cash flow planning and the lack of cash budgeting. So often individuals with an idea or a talent start a business but they neglect to plan or consider the necessity of planning. It's been said that to fail to plan is a plan to fail.

Following are short discussions and definitions of each topic in the unit content:

Shortages could relate to insufficient product to sell, or insufficient cash to buy the product to sell. Shortages could mean lack of cash to pay bills or debt or lack of cash or resources for expansion.

Surpluses could mean too much inventory that is costly to hold, or cash surpluses which require investment to produce a return on assets.

Cash budgeting is a systematic method to plan for the sources and uses of cash usually on a ...

Solution Summary

The 613 word solution includes a comprehensive discussion of planning and budgeting in a business including a 7 point list of major reasons for financial planning.

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Explain why forecasting is important to an organization

As a division manager at Abel Athletics, you are expected to work with the Finance Department to develop financial forecasts for your division. Prepare a document that explains why forecasting is important to an organization.

Questions:

1. Explain the forecasting process, compare, and contrast it to the budgeting process.

2. Discuss the role of projected or forecasted (pro forma) financial statements in the budgeting process.

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