Short-term financial planning
Short-term financial planning deals directly with short-term or current assets and liabilities in a business.
The most important current assets are: accounts receivable, inventories or inventories, treasury and negotiable instruments. The most important liabilities are accounts payable and short-term bank loans.
These short-term assets and liabilities are the components of the working capital or net working capital, which is nothing more than the difference between them (Ac-Pc).
For a company to function efficiently it must have capital invested in facilities, machinery, inventories, etc. The total cost of these assets are the so-called accumulated capital needs of the company. These can be covered with long or short-term financing according to the variations that present in the period. In order to obtain a better level of long-term financing in relation to the accumulated needs, the following are taken into account: maturity adjustments, permanent working capital needs and the convenience of cash surpluses.
Variations in cash and working capital can be analyzed by observing their sources and uses.
SOURCES OF TREASURE EMPLOYMENT
- Inventory reduction - Dividends
- Increase in accounts payable - Payment of CP loans
- Debt issuance - Fixed asset investment
- Resources generated by exploitation - Purchase negotiable securities
- C x C
SOURCES MANEUVERING FUND EMPLOYMENTS
- Issuance of LP debts - Dividends
- Resources generated by exploitation - Investment
In general the sources imply: increase of the liabilities and patrimony and decrease of the assets of the company.
The jobs imply: increase in assets and decrease in liabilities and equity of the company.
The problem of the financial manager is to foresee the future sources and uses of the treasury that give him two guidelines: they alert him to the treasury needs and provide him with a standard against which he can judge the evolution of the decisions taken.
The treasury budget begins with a forecast of the company's sales that become accounts receivable and thus the main source of the company's treasury. As for the outputs, they will be given by accounts payable, personnel, administrative and other expenses, capital investments and interests, taxes and payment of dividends.
The next step is to develop a short-term financing plan that can be done via bank debt (with or without guarantees) or via deferral of accounts payable.
Short-term financial plans are prepared through trial and error procedures, that is, the plan is drawn up, its development is observed, then it is adjusted as many times as possible until it cannot be improved further.
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