Business and Corporate Financial Planning
Business and Corporate Financial Planning
This domain tests financial planning for business owners: entity choice, working capital, break-even, cash forecasting, owner compensation, risk transfer, and succession. Expect questions on the Revised Corporation Code (RA 11232), BIR compliance, and separating business and personal finances.
Core rules
- A corporation is a separate legal entity; a sole proprietorship is not. Entity choice affects liability, taxation, and fundraising.
- Manage working capital as current assets minus current liabilities; forecast cash, not just profit.
- Break-even units = fixed costs ÷ contribution margin per unit.
- Protect the business with property, liability, key-person, and business-interruption coverage; a buy-sell agreement funds ownership transitions.
- Keep owner compensation, loans, and expenses documented and separate.
Worked example
Fixed costs ₱1.2 million; unit price ₱500; variable cost ₱300; contribution margin ₱200. Break-even = ₱1.2M ÷ ₱200 = 6,000 units. If forecast sales are 5,000 units, the business loses ₱200,000 at the contribution level. Reasoning: break-even converts fixed costs into a sales target and exposes whether the plan is feasible.
Traps
- Commingling personal and business funds.
- Ignoring working-capital needs during growth.
- No buy-sell or succession plan for co-owners.
- Underinsuring liability and business interruption.
- Missing SEC, LGU, and BIR filings.