Fundamentals of Financial Management (Planning, Strategy & Investments)
Introduction
The following information explains three basic tenets of financial activity; financial planning, financial strategy, and financial investments. Whether you are responsible for these areas or not, a basic understanding of these elements is helpful for understanding overarching operations within your organisation and their potential impact on donors.
Planning
What is a financial plan?
Important components of a financial plan are:
Cash flow statement
Balance sheet
Sales forecast
Personnel plan
Business ratios and break-even analysis
Source: How to Write a Financial Plan for Your Small Business — 2022 Guide
Why is a financial plan important?
Aside from helping you better manage your business; a thorough financial plan also makes you more attractive to investors. It makes you less of a risk and shows that you have a firm plan and track record in place to grow your business.
Financial Planning Resources
STRATEGY & INVESTMENT
Text: A financial strategy is not only managing an organization’s finances but managing with the intention to succeed in attaining the organization’s long- term goals and objectives. Therefore, a good financial strategy combines financial planning and strategic planning, promoting achievement of goals through careful, planned investment (investopedia.com). One important part is to have the organization’s mission, vision and values clear (batonglobal.com).
Text: An investment is an asset or item acquired with the goal of generating income or appreciation (an increase in the value of an asset over time). When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth and always concerns the outlay of some capital today – time, effort, money, or an asset – in hopes of a greater payoff in the future than what was originally put in. An investment involves putting capital to use today in order to increase its value over time. It therefore requires putting capital to work, in the form of time, money, effort, etc., in hopes of a greater payoff in the future than what was originally put in and can refer to any medium or mechanism used for generating future income (investopedia.com).
Text: It means that investments can take many shapes and enable NGOs to take advantage of a variety of resources. Considering all available investment resources when developing a financial plan promotes optimal use of financial resources.
- Time
- Physical assets
- Money
One of the keys to spending wisely is in treating the money you have – no matter where it came from – like it’s your money. Bootstrappers often talk about the way spending your won hard-earned cash makes you rethink the quality of every investment. This is a healthy mindset toward investment.
- Spend up to 20% on market research.
- At least 75% on building your minimum viable product
- Spend what remains on what is pressing or important.
How to Spend Your Startup’s Initial Investment (capterra.com)