Text B. Financial Plan

VIII. Identify the background and experience needed by an individual in order to become a financial officer of a corporation.

VI. Write the summary of the text.

V. Describe the difference between finance and accounting in regard to emphasis on cash flow.

IV. Explain the functions performed by the financial manager.

III. Give reasons why, in the modern business world, effective financial decisions are increasingly important to organizational success.

VII. Check the summary of the text written by one of the students and if it is necessary comment on the mistakes.

In order to determine the best sources and uses of funds, financial managers develop the organization's financial plan, which indicates the funds needed by the firm for a specified period, the timing of inflows and outflows, and the most appropriate sources and uses of funds. It is based on forecasts of production costs, purchasing, and expected sales activities for the period covered. Financial managers use forecasts to determine the specific amounts and timing of expenditures and receipts. The financial plan is built on answers to three vital questions:

1. What funds does the firm require during the next period of operations?

2. How will the necessary funds be obtained?

3. When will more funds be needed?

The financial manager must consider these three questions carefully and then decide on the best sources of funds and how they should be used.

Some funds will be obtained through selling the firm's products or services. But funds are needed in different amounts at different times, and the financial plan must reflect both the amount and the timing of inflows and outflows of funds. Profitable firms often face a financial squeeze as a result of the need for funds when sales lag, when the volume of credit sales increases, or when customers are slow in making payments. Cash inflows and outflows of a business are similar to those in a household; the members of a household may depend on a weekly or monthly paycheck for funds, but their expenditures vary greatly from one pay period to the next. The financial plan should indicate when the flows of funds entering and leaving the organization will occur and in what amounts.

A good financial plan also involves financial control, a process that periodically checks actual revenues, costs, and expenses against the forecasts. If there are significant differences between projected figures and reality, it is important to catch them early in order to take corrective action. Financial controls can be highly specific in order to indicate particular divisions, departments, or even employees that are somehow deviating from the financial plan. Sometimes the firm's business practices can be changed in order to more closely meet the goals of the financial plan. At other times, the financial plan itself may need to be changed if it is unrealistic.

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