Finance Policies, Procedures, and Forms

Bizmanualz.com

Document ID FA1000FA1000 Revision 0.0 Effective Date: mm/dd/yyyy

Title FINANCIAL OBJECTIVESFinancial Objectives Prepared By Preparer's Name / Title Reviewed By Reviewer's Name / Title Approved By Final Approver's Name / Title

Print Date mm/dd/yyyy Date Prepared mm/dd/yyyy Date Reviewed mm/dd/yyyy Date Approved mm/dd/yyyy

Policy:

The Company shall create and document clear financial objectives that align with the Companys RC1000-1 BUSINESS PLAN and the Companys strategic objectives. Setting and approving clear financial objectives assists the Company in achieving improved financial performance. This procedure applies to the Finance and Accounting departments in creating specific and balanced financial objectives. The Chief Financial Officer (CFO) is responsible for completing and gaining the approval of FA1000-1 FINANCIAL OBJECTIVES, and is responsible for the overseeing the financial health and financial performance of the Company, as well as a fiduciary responsibility to shareholders. Top Management and the Board of Directors are responsible for reviewing and approving FA1000-1 FINANCIAL OBJECTIVES. Department Managers are responsible for providing information and feedback necessary for preparing FA1000-1 FINANCIAL OBJECTIVES.

Purpose: Scope: Responsibilities:

Definitions:

Financial Objectives Clearly expressed and specific objectives (i.e. expressed in numbers, percentages, ratios) of the Company as they relate to its financial operations and financial structure. Balanced Scorecard A management system organized around four distinct business perspectives financial, customer, internal, and innovation/learning that seeks to balance short and long term objectives, financial and non-financial measures, lagging and leading indicators, and internal and external perspectives. SMART Objectives An acronym that describes important attributes for objectives: Specific, Measurable, Attainable, Relevant, and Time-Bound. Leading Indicator Indicator of future performance (e.g., an increase in interest rates is often a leading indicator of reduced consumer spending). Lagging Indicator Indicator of past performance, such as actual

FA1000 Financial Objectives rev 0.0

Page 1 of 10

Finance Policies, Procedures, and Forms

Bizmanualz.com

sales over a period. Business Phase The period or phase of a business usually defined by its potential for growth and profitability. For example, businesses are not typically profitable in their initial phase but have tremendous growth potential. On the other hand, while mature businesses may no longer be capable of rapid growth rates, they are often more profitable than when they were new. Return on Investment (ROI) Profit or loss resulting from an investment transaction, usually expressed as an annual percentage. Procedure: 1.0 1.1 FINANCIAL OBJECTIVES PLAN The CFO shall create clear financial objectives that account for and align with diverse and variable business considerations, such as:

Overall business strategies and plans; segment/department plans The Capital Plan (see RC1010 CAPITAL PLAN); Business priorities for short and long term sustainability; Experience and history of Company performance; History of Company and Finance objective setting and achievements; Industry standards and benchmarks; Customer and marketplace needs and dynamics; Sustainability reports; and Audit reports and opinions (see AC1040 EXTERNAL AUDITING and AC1050 INTERNAL AUDITING).

1.2

The CFO shall select financial objectives that focus on areas critical to business success, such as:

Revenue; Earnings; Profit margins; Total debt and debt expense; Return on investment; Cost of capital; Expenses; Investment Interest Return; and Cash on hand.

1.3

The CFO shall create financial objectives that adhere to the SMART Objectives philosophy, and shall create long and short term objectives (i.e. one year, three

FA1000 Financial Objectives rev 0.0

Page 2 of 10

Finance Policies, Procedures, and Forms

Bizmanualz.com

year, five year, ten year) as determined necessary by the CFO, Top Management, and the Board of Directors. 1.4 The CFO shall meet regularly with Top Management to discuss creating balanced objectives to meet various operational needs, financial and non-financial objectives, and long and short term goals. The financial objectives for a coming fiscal year shall be approved by Top Management and the Board of Directors at least 30 days prior to the end of the current fiscal year. CREATING SPECIFIC FINANCIAL OBJECTIVES After reviewing materials and requirements listed in Sections 1.0, the CFO shall complete the FA1000-1 FINANCIAL OBJECTIVES form per steps in Section 2.2 (See Figure 1) with "SMART" financial objectives that include detailed actions required and measurement goals, including explicit figures.

1.5

2.0 2.1

Figure 1 Example of Financial Objective Setting

2.2

To complete form FA1000-1, the CFO shall ensure each column is completed thoroughly and accurately. The columns should be completed as follows: Specific Objective Avoid vague declarations (e.g., fiscally sound). State specific objectives; for example, dollar amounts or percentages. Measurement - Measurable objectives shall relate directly to regularly appearing line items on monthly, quarterly, and yearly accounting and financial statements, in other financial or operational reporting, or results of financial statement analysis, so that actual performance can be clearly compared with stated objectives. Steps to Attain Objectives can be demonstrated as attainable by listing specific steps or concrete actions that can be taken to reach the objective (i.e., an objective for increased sales should list concrete steps needed such as hire 3 new sales people for 2 new markets). Relevant Objectives listed should be described as clearly relevant to the financial performance of the Company and within the responsibilities of the Finance department. It should also include if and how the objective aligns with the business plan, industry standards, market dynamics, or customer needs. Time Frame The specific time frame applicable for this objective should be included here (i.e. which fiscal year, which quarter of which fiscal year, what period or range of fiscal years).

FA1000 Financial Objectives rev 0.0

Page 3 of 10

Finance Policies, Procedures, and Forms

Bizmanualz.com

3.0 3.1

Notes Any additional notes or information can be included in this column, including complete action items and actual performance results.

BALANCING FINANCIAL OBJECTIVES The CFO fulfills their fiduciary obligation as trustee of stakeholder assets by ensuring Top Management gives due consideration to creating a balanced approach in allocating resources and management focus to all critical business areas and that areas necessary for the long term success of the business are not ignored in favor of short term financial gains. The CFO shall meet with key organizational members such as Top Management, department managers, and the Company strategy committee in order to make decisions to apply the required emphasis necessary in terms of resources and focus to distinct business areas that contain the Company assets. Typically these business areas are divided into four distinct segments (but could be expanded up to six to include areas such as health and safety or security, according to business unit requirements). The four business areas usually used in the Balanced Scorecard approach are: Customer satisfactorily identify and fulfill customer needs; Internal Business Processes control and improve the internal processes needed to fulfill customer needs; Learning and Growth develop infrastructure and employees, to ensure business processes continue to meet customer needs; and Financial focus on financial performance and the financial assets needed to support customer requirements, internal business process, and learning needs. 3.3 The

3.2

CFO shall incorporate balanced objectives into the FA1000-1 FINANCIAL OBJECTIVES form in ways that account for the stage of the business cycle the Company is currently in, as well as other aspects of the business, such as: The current and desired capital structure; Proper focus on particular financial objectives (i.e., in the growth stage, a focus on percentage growth in revenue; in the sustain stage, a focus on profitability; in the harvest stage, a focus on cash flow and asset utilization); Relative investments into new products or new technologies versus cost reductions or investment into production capacity; and/or Balance investment risk and return in accordance with requirements from Top Management.

FA1000 Financial Objectives rev 0.0

Page 4 of 10

Finance Policies, Procedures, and Forms

Bizmanualz.com

3.4 4.0 4.1

The CFO shall, as part of a balanced approach to setting objectives, create metrics that include leading and lagging indicators of financial performance. APPROVAL AND MONITORING OF FINANCIAL OBJECTIVES The CFO shall meet with Top Management within 90 days of the end of the fiscal year to review the FA1000-1 FINANCIAL OBJECTIVES, after which the CFO shall: Revise FA1000-1 as necessary and agreed upon by the CFO and Top Management; and Review all changes to FA1000-1 with Top Management and receive final approval within 60 days of the start of the fiscal year and prior to the Board of Directors review (Section 5.2).

4.2

The CFO shall meet with the Company Board of Directors within 60 days of the start of a new fiscal year to review the FA1000-1, after which the CFO shall: Revise FA1000-1 as necessary and agreed upon by the CFO, Top Management, and the Board of Directors; and Review all changes to FA1000-1 with Top Management and the Board of Directors and receive final approval within 30 days of the start of the fiscal year.

4.3

The CFO shall conduct regular meetings with Top Management to review progress in achieving financial objectives: The CFO shall confer with Top Management to decide the frequency of Financial Objectives review meetings (quarterly, at a minimum); The CFO shall discuss objectives that are not or will not be met and explain circumstances, suggest alternate strategies, or modify the objective(s); and The CFO shall report the results of financial objective review meetings to the Board of Directors.

5.0 5.1

IMPROVING FINANCIAL OBJECTIVES The CFO shall review the Company's historical performance relative to financial objectives over a period of three to five (3-5) years and evaluate the relationship of historical trends to the financial objective setting process, such as: If very few objectives are actually achieved, what are the probable causes (e.g., unattainable objectives, lack of concrete actions)? If all objectives are achieved, are they set to improve performance in fundamental ways or just a rote exercise? Do the necessary steps to attain financial objectives need to be reviewed and altered in order to achieve financial objectives?

5.2

The CFO shall, through regular financial meetings (see section 4.0), review the overall process of setting and achieving financial objectives.

FA1000 Financial Objectives rev 0.0

Page 5 of 10

Finance Policies, Procedures, and Forms

Bizmanualz.com

5.3

The CFO shall review the process for creating the FA1000-1 FINANCIAL OBJECTIVES after a period of setting and reviewing financial objectives and make necessary improvements to the financial objectives procedure and associated forms.

Effectiveness Criteria: Clearly stated, detailed, and communicated financial objectives Aligned and balanced financial objectives

References: A. CFO Manual

Section 5.1.1 Financial Objectives RC1000 BUSINESS PLAN RC1010 CAPITAL PLAN

B. Finance procedures

Additional Resources: A. Rules to Setting Business Goals and Objectives: Why and How to be SMART, Ezine article at http://ezinearticles.com/?Rules-to-Setting-BusinessGoals-and-Objectives:-Why-and-How-to-be-SMART&id=24276. GAAP 2008 Handbook of Policies and Procedures, CCH, Inc. ISBN-10 #0-8080-9120-4 / ISBN-13 #978-0-8080-9120-2.
B.

C. Balanced Scorecard: Translating Strategy into Action - Kaplan, R. S. and Norton, D. P. (1996) Harvard Business School Press. D. The Practice of Management: A Study Of The Most Important Function In American Society Drucker, P. (1954)

FA1000 Financial Objectives rev 0.0

Page 6 of 10

Finance Policies, Procedures, and Forms

Bizmanualz.com

Forms/Records:

FA1000-1 FINANCIAL OBJECTIVES Meeting minutes and reports

Revision History: Revision 0.0 Date 1/1/2007 Description of changes Initial Release Requested By

FA1000 Financial Objectives rev 0.0

Page 7 of 10

Finance Policies, Procedures, and Forms

Bizmanualz.com

[This page intentionally left blank]

FA1000 Financial Objectives rev 0.0

Page 8 of 10

Finance Policies, Procedures, and Forms

Bizmanualz.com

FA1000-1 FINANCIAL OBJECTIVES

Objectives for Year to Objectives for Period

Specific Objective

Measurement

Steps to Attain

Relevant

Time Frame

Notes

Comments:

Completed By: Date Approval: Date

FA1000 Financial Objectives rev 0.0

Page 9 of 10

Finance Policies, Procedures, and Forms

Bizmanualz.com

[This page intentionally left blank]

FA1000 Financial Objectives rev 0.0

Page 10 of 10