What is financial planning?
In management and finance, the process of determining how an organization, company, or person will manage its capital resources to achieve its set goals is known as financial planning or financial planning. In simpler terms, it is about developing a financial plan, a budget, types of insurance, and a spending plan that will allow you to organize money management effectively and conveniently.
This financial planning process must take into account deadlines, costs, and goals in a detailed, personalized and organized manner, for which it usually uses the following phases:
- Setting goals and their priority, expressed in economic terms
- Setting the deadlines for achieving these goals.
- Prepare a financial budget that identifies the items (or money segments) required to achieve the goals.
- Measurement and control of financial decisions made and their comparison with previous financial plans.
This way, it is usually done in advance to organize the organization’s economic future, generally in the hands of financial advisors and budget planners, whether owned or outsourced.
Financial planning goals
The primary goal of it is to develop a financial plan, that is, a roadmap to the set business goals, in terms of the management of finances and capital. An economic horizon is a money management strategy to get the most out of the organization’s fundamental policies.
To this end, any financial plan must conduct a thorough and detailed review of the current financial position .
The positive and negative consequences that its determined management would have in the short, medium, and long term.
Since there is no perfect or infallible plan, forecasts and projections also intervene here to anticipate unforeseen events and be able to come as close as possible to the final goal.
In summary, these goals can be summarized as follows:
- As far as possible, avoid situations of unavailability of economic resources.
- Reduce maintenance costs also lower the company’s opportunity costs.
- Ensure the financial sustainability of the organization.
Types of financial planning
Depending on the amount of time, we can quickly differentiate between two types of financial planning, namely:
Long-term financial planning
These are generally projections between 2 and 5 years into the future, so they treat with a much more comprehensive range of variables and uncertainties, requiring more general approaches.
Short-term financial planning
In this case, they are much more accurate forecasts, generally equal to or less than a year, so they consider immediate and require a more specific, narrower, and less general approach.
Importance of financial planning
It is an important tool for companies and organizations, especially when making decisions. Like people, companies have a budget and certain financial limits within which to achieve their goals. Therefore, careful investment planning is always a good idea. That is why so much invest in this area of business administration.
Financial planning example
It is large and complex because it involves numerous variables and environmental studies. Let us remember that the boundaries between knowledge are flexible in these disciplines, and they touch them. However, the dimensions of it can measure this and this other side.
Review What are financial planning and its objectives.