Cash Flow Projections, Contingency Plans - Coursework Example

Assessment Task Students Name Institution Supervisors Name Cash flow Projections Cash flow projection is an element of cash flow management. Cash flow projection is essentially forecasting the amount of money the company expects to get or spend in future (future cash inflow and outflow). In other words, it is the projected amounts of receipts and payments including all projected income and expenses. Projections can be long-term i.e. covering a period of twelve months, or short-term, i.e. covering a week or a few weeks or days. The importance of cash flow forecasting is wide. It can help the business forecast on future surpluses or cash shortages and thus be able to make reliable decisions. This can include preparing for tax payments as well as settling of other bills, purchasing of new equipment, putting aside cash that can be used for business expansion and establishing good relations with banks and ensuring that the business does not default the payment of any bank loans. The business will also be able to brace itself for tough times in case such a situation comes by. Scenarios can be considered during the forecasting process and give room for adjustment in case the business is hit by some sort of financial turmoil. Measures can thus be taken to insulate the business from the serious effects of cash shortfalls. Financial Managers played a critical role in financial forecasting. They provide financial advice and support to colleagues as well as clients during the process of coming up with cash flow projections. Since the business environment varies considerably, it is upon the financial manager of any business to give the guidance necessary to the analyst who has been given the responsibility of coming up with the cash flow projections. Since the cash flow projections involve substantial amount of funds, the financial manager’s involvement in this process is invaluable. Cash flow projection has financial implications on how the activities of a company will be conducted in future to ensure the company remains on the profit making track.This is essential for the achievement of both short-term and long-term goals. To ensure the validity and accuracy of these projections, the financial manager was consulted to provide and interpret the already available financial information. These include but not limited to historical statements on cash inflows and outflows, previous statements of financial positions, profit and loss accounts.The information thus obtained from these documents were used on coming up with the future cash flow projections. This plan was also prepared from other documents obtained from the office of the financial manager pertaining to the various factors influencing business performance. These include competitors and government policies that may have direct or indirect effects on the cash flows within the organization. The financial manager gave the laid down mechanisms of monitoring and minimizing financial risk. Other than these, the financial manager, being in direct communication with auditors and also the custodian of auditing results, provide valuable information that are very helpful for the accuracy of the forecasted cash flows. This is because it is the efficiency and accuracy in performance of available equipment and production mechanisms that will lead to preparation of reliable cash flow projections. The information on market trend also obtained from the office of the financial manager was used in preparing this plan. This includes the change in consumer taste and performance of company brand. The financial manager is the officer of the company responsible for developing the contact relationship with appropriate external parties like solicitors, bankers and statutory organizations. It is these parties that shape the financial status of the company and good relations with them will ensure stability of future cash flows. The manager is also in charge of supervision of all the other staff in the company and this makes him the custodian of the financial information obtained from other departments including all sorts of expenditure and payments made through such departments. The financial manager was thus thoroughly consulted and all other progresses reported to him to gain his approval on the progress. This plan thus gained major support from the top management making it legitimate and acceptable. The accuracy of this plan will however depend on whether all other factors affecting production and market stability remain within the predicted range. Otherwise, it may necessitate the implementation of contingency measures that are also well documented. The input of the Financial Controller was considered when coming up with these financial projections. This was necessary because it is the financial controller who is responsible for preparing all the accounts of the company and I thus conversant with the trend in cash flows in the company. Any changes in cash flows are first noted by the financial controller before any other officer of the company notices it. This makes financial controllers particularly important in the preparation of this plan. The financial controller is also tasked with the role of keeping all the books in the company including past financial inflows and outflows. It gives the meaning that the financial controller is very well conversant with the historical past of the company. In addition to all these, the role of the financial controller of processing and paying invoices and also recording receipts and payments add to their already loaded information kit. Generally, the financial controller deal with any form of financial transaction that is conducted between the company and external party, either in the form of payments or receipts. The financial controller is thus the officer in the company with a vast knowledge on the activities of the company. The consultation and guidance thus offered by the financial controller contribute the large majority of the information used to prepare this plan. This approach thus ensures that the financial controller will find this plan acceptable, accurate and admissible in the face of future cash flows of the company. Any other necessary corrections by the financial controller would be acceptable so as to make this plan as accurate as possible. The Supervisors are part of management team who oversee the implementation of the company strategies. They are also important parties in the preparation of cash flow projections in that they are in touch with the workers and thus bear the real information on the ground. The information obtained from supervisors include but not limited to; the production capacity of the current workforce and the need to hire more workers in future; the capacity, efficiency of the current equipment and the need to acquire or outsource for better equipment in future; the sustainability of the current workforce; maintenance cost of present equipment; the capacity and state of the current storage facilities; the inventory turnover ratio; and the market situation of the product produced or service offered. It was thus important to involve the supervisors in the preparation of this plan. This would ensure that the final document obtained is reliable and based on raw facts and not based on hypothetical scenarios. In addition to the supervisors, other frontline managers were also involved in order to obtain reliable information. These frontline managers are tasked with supervising the working of the employees in the absence of the supervisors. The information obtained from the frontline managers compliment that obtained from the supervisors. Cash flow projection is a process which is dynamic and subject to adjustments in case the projected economic situation does not turn out to be the same. Short-Term Plans The short-term planning involves assessing the characteristics of the business at the current state and developing strategies on how to improve them. These are usually plans and strategies covering between twelve months and two years. These plans focus on the goals which can be achieved within a short period of time. These may include employee skills and attitudes. These may be measures to improve customer service by ensuring that customers are treated well and with politeness. Short-term plans may also involve assessing the present condition of the company equipment or product quality problems. These are situations which require immediate intervention by the management to prevent the condition from deteriorating. Failure to check on these situations may end up affecting the profitability of the company. Managers set short term plans to lay ground for achievement of long term goals. Although short terms goals are meant to solve problems which require immediate attention, they are instrumental in assisting the company achieve goals which would otherwise be elusive to the management. For instance, the company may invest in training of its employees with the aim of equipping them with the requisite knowledge to operate in a certain field. However, this may be a strategy of the company to prepare ground for future expansion or installation of newer technology which may be used to elevate the financial base of the company. The roles of financial managers as described above make the financial manager a key contributor to the preparation of short term goals. The managers provide the information that can be used in determining the short term measures that need to be taken to keep the company in a competitive position in the market. The use of financial statements in making short term plans is ideal in the sense that the company will only make plans based on the amount of money that is available at its disposal. It is upon the financial manager to make available the information that is needed for the implementation of short term goals of the company. It is thus important to involve the financial manager in the process to make the plans acceptable among the staff and achievable within the financial bracket of the company without necessarily having to stretch the company beyond its financial limits. The financial controller, as described above, also plays a critical role on the crafting as well as implementation of the short term strategies. The responsibility given to the financial controller of being in charge of any payments made to other parties is essential for the implementation of these strategies. The acceptability of the short term plans can only be acceptable if the financial controller assents to it. The controller may decide at one time to produce a different perspective of the company’s financial position, which may entirely end up changing the face of these strategies or dropping of some of them. The preparation of cash flow projections and short term plans is an extensive process that needs to be done with keen attention. The input of all stakeholders needs to be taken into account and to factor in the information obtained from these sources. Planning cannot be conducted without the availability of historical data. Previous cash flow data is essential in determining future projections. These projections are as accurate as factors in the external business environment remain within the forecasted bracket. Any significant deviation from the planned projections that may render these projections and plans ineffective, call for contingency measures to be put in place to counter this. Contingency Plans Deviation from the planned strategies may call for the implementation of the contingency plans. These are measures that are put in place to ensure the company still survives even in the toughest of situations. Contingency measures that were put in place include: i) Outsourcing or contracting The company may need to seek services from relative companies to supplement the already available capacity in case the current one is overwhelmed. In case the company does not have the necessary equipment to satisfy customer demands, the company may resort to contracting. ii) Diversifying outcomes A time may come when the products that the company has specified in does not meet the financial requirement of the company. In such a case, the company may engage in other activities to generate additional income. iii) Use lower quality materials If production in future becomes too expensive owing to the high quality raw materials that the company is using, the company may decide to go for cheaper materials to cut on cost. iv) Increase sales or production The company may have expanded market base in future. This may call for the company to increase its output to cater for the increased demand. v) Applying risk management strategies Risk is an unprecedented situation which may put the company in a bad financial situation. Measures are put in place to counter the impact of such a risk. vi) Seek more funding If the company is faced with stringent financial situation, it may be necessary to for the company to engage banks and borrow so as to make things better. vii) Reduction of cost and wastage The loss of money and materials may be attributed to wastage and excessive spending. The company may thus be forced to cut down some expenses to reduce the wastage witnessed. References Small Business.Short-Term, Medium-Term & Long-Term Planning in Business, 2011.http://smallbusiness.chron.com/shortterm-mediumterm-longterm-planning-business-60193.html. Accessed on: June 16, 2014 Australian Mining.Short term planning, long term benefits, 2010.http://www.miningaustralia.com.au/news/short-term-planning-long-term-benefits. Accessed on: June 6, 2014 Project Management Consulting.Project Management Issues and Concerns, 2001.http://www.maxwideman.com/issacons3/iac1309/sld002.htm. 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