We explain to you what financial planning 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, it is known as financial planning or financial planning to the process of determine how an organization, company or person will manage its capital resources to achieve your stated goals. In simpler terms, it is about the development of a financial plan, that is, a budget and / or an expenditure scheme that allows to organize the management of money in an efficient and convenient way.
This financial planning process must consider deadlines, costs and objectives in a detailed, personalized and organized way, for which it usually resorts to 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 money segments) necessary to meet the objectives.
- Measurement and control of financial decisions taken and their comparison with previous financial plans.
In this way, financial planning is usually carried out in advance, such as a way to organize the financial future of the organization, usually at the hands of financial advisers and expense planners, either their own or outsourced.
Objectives of financial planning
The fundamental objective of financial planning is the developing a financial plan, that is, a roadmap towards the proposed business objectives, in regard to 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.
For this, all financial planning exercises a rigorous and detailed examination of the current financial status should be drawn up and of the consequences, positive and negative, that its determined management would suppose in the short, medium and long term.
Certainly like there is no perfect or foolproof planForecasts and projections also intervene in this, in order 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 situations of unavailability 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. These are generally 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, they are much closer projections, generally equal to 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 manage to achieve their objectives, so a thorough plan of 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 boundaries between knowledge are mobile, they touch. It is possible, however, to appreciate the dimensions of financial planning on this page as well as on this other.