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< prev - next > Energy CA_Toolkit PAC SmartFinal (Printable PDF)
Annex 2: A financial planning framework
A robust business or project plan is the fundamental roadmap for a new business
or project. A good business or project plan will do the following:
Shows that the proposed business is a serious initiative, undertaken by
capable entrepreneurs who understand and have control of the essential
elements that will ensure success;
Increases the chances that an entrepreneur will be able to attract
investors, lenders, partners, strategic allies, suppliers and key staff;
Forces the entrepreneur to collect, in one place, all of the thinking and
research that has gone into the development of a proposed business.63
A business or project plan includes elements on all aspects of the operation,
including a financial plan. Preparing a financial plan is a major undertaking
requiring skilled personnel. This section aims to provide an introduction to the
elements of a financial plan; linked resources should be studied for more detailed
information on how to prepare a financial plan.
A financial plan is a key management tool for planning, monitoring, and controlling
the finances of a project or organization. It estimates the income and expenditures
for a set period of time for your project or organization. Your budget can serve a
number of important purposes, including:
Monitoring the income and expenditures over the course of a year (or a
specific project time frame)
Helping to determine if adjustments need to be made in programs and
Forecasting income and expenses for projects, including the timing and
the availability of income (such as additional grant funds)
Providing a basis for accountability and transparency.64
Elements of a financial plan include a Budget, Balance Sheet and Cash Flow
Statement. The Budget identifies main income and expenditure streams for the
project. The Balance Sheet is a presentation of what your business owns (assets)
and what it owes (liabilities) at a specific date. It is important that assets and
liabilities balance for the viability of the business or project. The Cash Flow
Statement is designed to explain the change in the amount of cash during a given
period. It shows when you generate revenue and whether or not expenses can be
paid.63 The Cash Flow Statement is also required for further financial analysis for
methods such as Internal Rate of Return (IRR) and Net Present Value (NPV).
The following table outlines key components to consider when producing a budget
for a RE project.
Renewable Energy to Reduce Poverty in Africa