In the field of administration and finance, financial planning is the process of determining how an organization, company or individual will manage its capital resources to achieve its long term objectives. In simpler terms, it is the preparation of a financial plan, a budget and/or a spending plan that will enable the organization to manage its money in an efficient and highly beneficial manner.
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:
– Establishing clear objectives
– Preparation of a financial budget that identifies the items (or segments of money) needed to meet the objectives.
– Measurement and control of the financial decisions made and their comparison with previous financial plans.
Thus, financial planning is usually done in advance, as a way of organizing the organization’s financial future, usually by financial advisors and expense planners, either in-house or outsourced.
Objectives of financial planning
The fundamental objective of financial planning is the elaboration of a financial plan, that is, a road map towards the business objectives set, as far as the management of finances and capital resources is concerned. In other words, a financial horizon, a money management strategy to get the most out of it in favor of the organization’s fundamental guidelines.
To this end, any financial planning exercise must include a rigorous and detailed examination of the current financial status and the consequences, both positive and negative, that its determined management would entail in the short, medium and long term.
Of course, as there is no perfect or infallible plan, forecasts and projections also play a part in this, in order to be able to anticipate unexpected variables that can affect the desired results.
– Avoid situations of unavailability of financial resources
– Reduce costs
– Guarantee the company becomes profitable over a long period of time
Financial planning is a vital tool for companies and organizations, especially when making decisions. Just like individuals, companies have a budget and certain economic limitations within which they must manage to achieve their objectives, so a thorough plan of how to invest money is always a good idea.
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