Budgeting as a financial planning tool
Many are in a state of insolvency of the enterprise. Some people know this very well (even sometimes, too well). Some do not know about their condition, and this is not as rare as we would like. So I want to talk about the very basis of solvency.
Being solvent is easy. But, let’s order.
The main purpose of financial planning is to regulate the financial flow. Basically it deals with the income and expenses of money. Parish is carried out from the service of marketing and sales. Regular debt collection activities (receivables) support this tidal wave. And then you need to think about solvency.
The definition of solvency is a condition in which there is more money in stock than accounts to pay.
That’s all, so simple. When I show this definition to businessmen, they sometimes say: “This is not quite so … I have such large stocks, and so much real estate … And according to your formula, I am insolvent! Why is money available? And other material values?
Note – you pay the bills are not houses. You pay with money. Therefore, in each case when you are going to pay bills, you either have enough money or not. You are either solvent or oops …
Charles Dickens put the following phrase into the mouth of one of his characters: “A happy man earns 20 pounds, but spends 19. The unfortunate one earns 20 pounds, and spends 21”. This is the exact formula of insolvency.
Here, as they are now taught to count money in economic universities. And how people really work, balancing on the verge of a financial hole. The economist calculates a financial plan, based on indicators of past periods, taking into account a lot of different parameters. A budget is prepared for the year ahead, which takes into account planned rises, planned recessions, seasonality, etc. Will of the gods, probably, too, will soon learn to predict. It would be very helpful.
Then the company works, the money goes into it, and is spent on the basis of this previously drawn up “plan of fate”. All this sounds ridiculous, but most people are so accustomed to such “financial planning” that they do not understand why. What’s so funny?
“Charles Dickens put the following phrase into the mouth of one of his characters:” A happy man earns 20 pounds, but spends 19. The unfortunate one earns 20 pounds, and spends 21. “This is the exact formula of insolvency.”
This scheme is called “divide the skin of an unkilled bear.” And then, at the end of the month, or, God forbid, a quarter, the head looks – did we have a plan for a fact? Got or not hit? Was fate favorable?
Sometimes it turns out that “was not.”
Financial planning methods
I will share with you the secret, how to take control of the solvency once and for all. Just do not tell anyone, this is a big secret. It is contained in the international management standard, based on the management technology of L. Ron Hubbard, “Model of administrative know-how”, which is implemented in enterprises by the WISE association. When I show this scheme to some clients, they say: “Well, it’s not even interesting. No risk. You will always be solvent. ”
The first rule for managing a company’s finances is that you can only plan for the money that has actually arrived at the enterprise.
Immediately the question arises about the period – every day too often, every month not promptly. Therefore, the estimated period selected week.
So, last week’s receipts are not spent before the weekly financial planning is completed.
Is this what someone will ask? To freeze money for a week? Yes, only once – at the time of transition to this system. A good consultant will help smooth out this period so that everything passes unnoticed. And then the cash flow is leveled: the money that came on the plot is postponed until financial planning, but at the same time the already planned arrival of the last week is spent. This is a plus – the money supply in the company increases – hence, the solvency.
But what happens in financial planning. You know how much money came last week. And you should know how much you spent directly on the production of your products or services. If you do not know this, you do not know how much you have earned, and therefore you cannot know how much you have the right to spend and for what. We need to urgently organize the system so that you know exactly what you got the money for (for some companies this is an actual problem).
Suppose a company sells furniture. This week, 100 tables of 100 Uruguayan pesos each were shipped and paid for. Gross income was 10,000 pesos. The purchase price of the tables was 50 pesos, delivery costs amounted to another 10 pesos. Total 60 pesos cost each table. The company earned 40 pesos on each table, that is, the “dirty profit” or “margin” was 4000 pesos this week. In Hubbard technology, there is the term “adjusted gross income”