Prediction Of Additional Funding Requirements

The main task of financial planning is to identify additional funding requirements, which appear due to an increase in the supply of goods or services. At the level of first approximation, this problem can be solved by consolidating forecasting of key financial indicators of business enterprises. Balance sheet and income statements are used as such indicators.

The approach is simple. Expansion of the company (of sales volume) inevitably leads to the need to increase its assets (fixed and circulating capital). Consistent with this increase in assets we must find additional sources of funding. Some of these sources (eg, accounts payable and accrued liabilities) increase according to increasing of the sales volume of your company. Obviously, the difference between the increase in assets and increase in liabilities and is the need for additional funding. In making the decision to allocate additional funding we should sing out: 1) the preliminary phase (phase of detection and assessment of the problem) and 2) the stage of direct solution.

We can tie the following with a preliminary stage:
Prediction of additional volumes of fixed and floating charges over the planning period.
Prediction of additional equity and debt financing sources, which appear in the normal conduct of business,
Estimate of the amount of additional funding as the difference between the amount of additional assets and additional debt and equity.
Phase of solution is the sequence of actions as follows:
Step 1. Forecast report of earnings for the planning year.
Step 2. Forecast of balance on a planning year.
Step 3. Deciding on the sources of additional funding (at this stage you will require an iterative recalculation of the main indicators of the balance sheet and profit).
Step 4. Analysis of key financial indicators.
Each step requires more detailed consideration, but in this article we will consider only forecast report of earnings for the planning year.
Forecast report earnings for the planning year. To implement such a forecast we should have the following initial data:
The sales forecast for the planning year. This problem is solved by marketing companies. And under the current method, the solution should be done in a much enlarged form – as percentage growth in total sales, not broken into separate product groups. For example, the chief marketing of the company must justify that in the planned year sales will increase by 10 percent.

Assumptions regarding the coefficients of operating expenses. In particular, we can assume that these percentages are the same as in the current year; costs increase in proportion to sales. In more complex cases it is necessary to produce forecasts of costs separately.

Rates of interest on loan capital and short-term bank loans. These percentages are chosen based on the experience of communicating of financial manager with banking firms.

The main purpose of the forecast of profit is to estimate the amount of future profits, and how much profit will be reinvested.

World crisis has made lots of people taking care of their retirement and future, look for different ways to save funds and retirement financial planners. Those who are concerned about their future well-being, are recommended to go to this professional financial planner site – the right spot on the Internet to get professional pieces of advice and find out how organizing personal finances is made.

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