Introduction to Strategic Planning - Before Starting a New Business or Implementing New Strategies to the Existing Business

Executive Summary

This report contains the introduction to strategic planning that needs to be done before starting a new business or implementing new strategies to the existing business. It includes the steps to be taken to prepare and analyse cash budget based on Oxford Ltd (OL). It discusses the various factors to be considered while making short term investment. It as well includes the steps needed to develop a good cash collection system to guarantee timely payment from debtors. It also compares Islamic to commercial banking, explaining the advantages and disadvantages of overdraft finance. This report explains surplus money needed to be invested in a short term period and how a firm can arrange money in the condition of cash deficit. Finally, we suggest recommendations for improvement and a concluding remark.

TABLE OF CONTENTS

EXECUTIVE SUMMARY

1.0 INTRODUCTION: Strategic Planning....................................................................pg 3-4

2.0 BUDGETING PROCESS.........................................................................................pg 4

2.1 COMMUNICATION OF THE BUDGET POLICY AND GUIDELINES............pg 4-5

2.2 IDENTIFYING LIMITING FACTORS THAT CURB PERFORMANCE...........pg 4

2.3 SALES BUDGET PREPARATION...................................................................pg 5

2.4 BOTTOM-UP BUDGET PREPARATION........................................................pg 5

2.5 BUDGET NEGOTIATION AND TOP-DOWN APPROVAL.............................pg 5-6

2.6 COORDINATION AND OVERALL OVERVIEW..............................................pg 6

2.7 ULTIMATE ACCEPTANCE OF THE BUDGETS.............................................pg 6

2.8 BUDGET REVIEW.............................................................................................pg 6

3.0 CALCULATIONS AND ANALYSIS OF CASH BUDGET.......................................pg 7

4.0 SHORT TERM INVESTMENT ON ANY SURPLUS................................................pg 7

4.1 RISK....................................................................................................................pg 7

4.2 RETURN.............................................................................................................pg 7-8

4.3 CASH FLOW: TIME VALUE OF MONEY.........................................................pg 8

4.4 MATURITY.........................................................................................................pg 9

4.5 LIQUIDITY..........................................................................................................pg 9

5.0 CASH COLLECTION: CREDIT CONTROL POLICY................................................pg 9-11

6.0 OVERDRAFT FINANCE...............................................................................................pg 11

6.1 A COMPARISON BETWEEN COMMERCIAL AND ISLAMIC BANKS..........pg 11

6.2 ADVANTAGES OF OVERDRAFTS..................................................................pg 12

6.3 DISADVANTAGES OF OVERDRAFTS............................................................pg 12

7.0 RECOMMENDATIONS AND CONCLUSION........................................................pg 12-13

1.0 INTRODUCTION

Strategic planning is an essential function for all business entities. Strategic Planning is simply a game plan for acquiring competitive advantage and earning higher profits. Alam and Hoque, (2005, p. 441) emphasize the close relationship between budgets and strategic or long term planning. It enables the business managers in creating value for customers and making better use of time and limited resources. Porter (1985) identified three basic approaches applied at business unit level: price leadership, product demarcation, and focus. These approaches are basic because they are neither definite nor industry dependent. Reid (2006, A critical evaluation of the effect of participation in budget target setting on motivation, volume 17), justifies that the development of a budget system must consider its effect upon an organization's human factors, as budgets serve the purpose of guiding people's actions, controlling their activities, and measuring their performance. It helps in effective communication with the stakeholders, including customers, investors and employees. Strategic planning helps the management in identifying the objectives of OL and making policies to achieve them effectively.

To ensure successful budgeting, OL must centre attention on its environment thoroughly considering certain vital factors; such as, PEST (political, Economical, Social and Technological) factors and SWOT (Strength, Weakness, Opportunities and Threats) analysis. These factors are significantly determined by the quality of the firm's strategic planning. Engle (2010, p. 20, budgeting process, volume 6) iterates that a budget is most effective when it is realistic, precisely indicates the company's strategic business plan, includes flexibility and is monitored against performance. This is supported by its findings where percentages of surveys indicate this same scenario. The cash budget helps indicate the forecasted cash inflow and outflow for a selected time.

2.0 STAGES OF THE BUDGETING PROCESS

There are eight distinct stages considered when preparing a budgetary system for a company. The normal budget preparation period in Malaysia commences from July to the end of December yearly.

2.1 COMMUNICATION OF THE BUDGET POLICY AND GUIDELINES

Drury (2008, p.358) suggest that the board of directors of a firm must effectively convey the policy of the long-range plan to those with the responsibility of preparing the present year's budget. Thus, managers should be knowledgeable of the management policy to aid implementation