What is financial planning?
Source : icofp.org
Financial planning is a process through which the entity will determine the path to achieve its strategic goals set up by them. So we can say that the planning to keep your money working for you to achieve the objectives of the entity. These financial plans are generally formed on the basis of the objectives and the missions of the companies thus it will be made after the vision or objectives are set for the period.
The financial plans explain the use of all the resources of the companies to achieve the objective, thus it includes the ways in which the resources will be used and in what manner and quantity they will be used. It describes each and every activity, materials, resources and most importantly the quantum of time to be utilized to carry on such a financial plan.
Basis of financial planning
Source : static1.squarespace.com
There are many responsibilities of the financial planners in the planning for companies; some of these are as follows which they need to follow to provide a proper financial plan
- Determining the sector or segment which contributes well in companies’ profitability and growth.
- Identifying the product and its cost structure along with its profit ratio.
- The cost and profit of the individual departments so that the departmental profit and growth can be determined.
- Preparing the reports on internal working system as well as on the matters of external factors.
- Identifying the resources to be needed to achieve an objective.
- Budgeting the quantity of the resources which are to be used such as materials and machinery.
- Comparing the past results as well as the present condition of the company.
- Considering the total cost of the resources.
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All these factors and resources are to be used and the budget shall be prepared by summarizing all these factors.
The role of the financial planning is very much in the organization, it is important for the organization to bring up the proper financial plan as it will lead towards the prosperity of the organization. The financial planning will be also useful in many ways like providing assistance to the higher level officers of the company to set the targets and also it will provide the proof that the set targets are not beyond the reach of the companies and the targets can be achieved if the planning is done in an effective manner.
Preparation of the financial plan
Source : eutraining.eu
The main thing which is to be seen in the financial planning is to see that what is the time period for which it is to be prepared? There are mainly two categories in these; one is for the shorter period of time (generally for the period of 12 months) and the other one is for a longer period of time (which is 2-5 years). Also it is to be seen that whether the planning is needed to be prepared for a particular task or for the general purpose. Thus these all are the factors to be kept in mind while preparing the financial planning for the companies.