Financial planning is a critical component of the financial management process. It is the activity or function of planning for and preparing for future financial problems. The purpose of financial planning is to anticipate possible problems and guide one’s decisions in order to avoid having problems.
A financial plan is a written document which can contain three or more sections, according to the type of planning. When planning for a personal situation, it must be divided into three parts: asset allocation, business allocation, and the provision of income, financing, and investment. On the other hand, in the case of a business entity, a business plan is prepared for future operations. In both cases, there are companies that specialize in drafting financial plans.
If a client business enterprise decides to change its strategy and needs to shift from an operation using material goods to a more profitable business operating on a different platform, it is necessary to change the plan of financial planning. A major change can be handled through the impact on the earnings of the company.
Financial planning requires the use of management and financial tools. There are two factors that affect financial planning; these are resources and goals.
Resources are the requirements for the success of a plan. These resources could include money, or assets, human and effort. The activities and achievements of the client company can be considered as resources. In other words, a proper plan is a resource.
Objectives are the plans and activities that are required to achieve the goals of a plan. These objectives can be made up of several elements, depending on the type of financial planning. A business plan includes activities for the improvement of the company. It also includes measures for improving production and increasing sales. A balance sheet gives the total resources for each year.
The goal is the goals that have been established for a particular activity or sector. This goal should be defined according to the nature of the task at hand. The goals are the actions that must be carried out to achieve the objective. A cost analysis is required to evaluate the progress of the project in terms of financial and time parameters.
Planning requires the estimation of resources and the methodologies for forecasting for the performance of the organization. The ability to forecast the time to the next increase in production is essential in determining the correct tools for a financial plan.
In contrast to the requirement of planning, financial planners can easily go beyond that by designing for a specific activity. However, this requires some experience in estimating and interpreting the information for future activity. As a result, most financial planners will look for an expert who is experienced in the field of financial planning.
Another facet of financial planning is the development of an exercise book. The exercise book is used to create a financial plan that contains a logical sequence of activities needed to reach a certain goal. This kind of book is usually very detailed with all the work and development goals, milestones, and procedures.
Financial planning is a critical element in the process of financial management. It guides financial decisions so that they may be executed in the best way possible to meet the objectives of the organization.