We explain to you what the financial planning and what are its objectives. In addition, how it is classified, why it is important and examples.
What is financial planning?
In the field of administration and finance, financial planning or financial planning is known as the process of determining how an organization, company or person will manage its resources capital to achieve its established objectives. In simpler terms, it is about the elaboration of a finance plan, that is, a budget and / or an expense scheme that allows organizing money management in an efficient and convenient way .
This financial planning process must contemplate deadlines, costs and objectives in a detailed, personalized and organized manner, for which it usually uses the following stages:
- Establishment of objectives and their priority, expressed in financial terms.
- Definition of the 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 the financial decisions taken and their comparison with previous financial plans.
Thus, financial planning is usually exercised in advance, as a way of organizing the financial future of the organization, usually at the hands of financial advisors and expense planners, either own or outsourced.
See also: Financial accounting.
Objectives of financial planning
The fundamental objective of financial planning is the elaboration of a finance plan, that is, a road map towards the business objectives set, in terms of the management of finance and capital resources. That is, a financial horizon, a money management strategy to make the most of it in favor of the fundamental guidelines of the organization.
For this, every financial planning exercise must draw up a rigorous and detailed examination of the current financial statement 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 infallible plan, this also involves forecasts and projections, in order to anticipate unforeseen events and to be as close as possible to the final objective.
In conclusion, these objectives can be summarized in:
- Avoid situations of lack of availability of financial resources as much as possible.
- 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 wider 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 or less than a year, so they are considered immediate and require a more specific, narrower 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 be managed to achieve their objectives, so a thorough plan on how to invest money is always a good idea . This is the reason why you invest so much in this sector of business administration.
It can serve you: Strategic planning.
Example of financial planning
Financial planning is extensive and complex, since it involves numerous variables and environmental studies . Remember that in these disciplines the boundaries between knowledge are mobile, they touch. It is possible, however, to appreciate the dimensions of a financial planning on this page and also on this page.