We explain what financial planning is and what its objectives are. Also, how it is classified, why it is important and examples.
What is financial planning?
In the field of administration and finance, the process of determine how an organization, company or person will manage its capital resources to achieve your established objectives. In simpler terms, it is about developing a financial plan, that is, a budget and/or an expense plan that allows you to organize money management in an effective and convenient way.
This financial planning process must consider deadlines, costs and objectives in a detailed, personalized and organized manner, for which the following stages are usually used:
- Establishment of objectives and their priority, expressed in financial terms.
- Definition of deadlines to achieve these objectives.
- Preparation of a financial budget that identifies the items (or segments of money) necessary to meet the objectives.
- Measurement and control of financial decisions made and their comparison with previous financial plans.
In this way, financial planning is usually carried out in advance, as a way to organize the financial future of the organization usually at the hands of financial advisors and expense planners, whether in-house or outsourced.
See also: Financial accounting
Objectives of financial planning
The fundamental objective of financial planning is the preparation of a financial plan that is, a roadmap towards the proposed business objectives, regarding the management of finances and capital resources. That is, a financial horizon, a money management strategy to get the most out of it in favor of the fundamental guidelines of the organization.
To this end, every financial planning exercise a rigorous and detailed examination of the current financial state must be carried out and the consequences, positive and negative, that its determined management would entail in the short, medium and long term.
Of course, as There is no perfect or foolproof plan forecasts and projections also intervene in this, to be able to anticipate unforeseen events and be able to get as close as possible to the final objective.
In conclusion, these objectives can be summarized as:
- Avoid as much as possible situations of lack of availability of financial resources.
- Reduce maintenance costs to also reduce the opportunity cost of the company.
- Guarantee the financial durability of the organization.
Types of financial planning
Based on its temporal scope, we can quickly distinguish two types of financial planning, which are:
- Long-term financial planning. Generally these are projections between 2 and 5 years in the future, so they are handled with a much greater range of variables and uncertainty, which also requires more general approaches.
- Short-term financial planning. In this case, these are much closer projections, generally equal to or less than a year, so they are considered immediate and require a more specific, more limited and less general approach.
Importance of financial planning
Financial planning is a vital tool for companies and organizations, especially when making decisions. Like people, companies have a budget and certain economic limitations within whose margins they must manage to achieve their objectives, so A thorough plan for how to invest money is always a good idea. This is the reason why so much is invested in this sector of business administration.
Financial planning example
Financial planning is extensive and complex, since involve numerous variables and environmental studies. Let us remember that in these disciplines the borders between knowledge are mobile, they touch each other. It is possible, however, to appreciate the dimensions of financial planning on this page and also on this other one.
References
- “Financial planning” at Econlink.
- “The 4 keys to financial planning: objectives, deadlines, budget and decision control” in ANDBANK Private Bankers.
- “Financial planning” in Gestiopolis.
- “Financial planning” in Personal Finance.
- “Financial planning” in Economic Zone.
- “Financial Planning” in Wikipedia (English).
