The financial planning: What you need to know |
Posted: April 27, 2019 |
Financial planning consists of:
Financial planning does not propose to minimize the risk, but rather it is a process by which it is decided what risk to face and which are unnecessary or not worth accepting. The companies should plan short and long term. Short-term planning is rarely projected beyond the next 12 months. It consists above all in ensuring that the company has enough cash to pay its bills and so that the debt and short-term loans are taken on favorable terms. In long-term planning, the normal planning horizon is 5 years (although some companies extend it to 10 years or more). To get a perfect plan for your business click on Griffin Financial Anaheim CA. Financial planning focuses on the big picture Those who propose many of the capital expenditures of companies are the heads of the plant. But the final budget must also reflect the strategic plans drawn by the managers. Opportunities with positive NPV appear in activities where companies have real competitive advantages. The planes are also to identify which activities have to be sold or liquidated, as well as those that need to be abandoned. Financial planning demands a large- scale capital budget. During the process, financial planners try to examine the investment according to each line of activity, and avoid becoming entangled in details. But some projects are of sufficient magnitude to produce a profound effect on their own. It must be borne in mind that financial planners usually do not deal with projects individually. The smallest ones are added to a unit, which is then treated as a unique project. At the beginning of the planning process, managers usually ask the divisions to submit alternative plans that cover the following 5 years: 1- A plan at best, or aggressive growth, which requires heavy capital investment and rapid growth of existing markets. 2- A normal growth plan, in which the activity grows with the markets, but not at the expense of the competitors. 3- A reduction plan, in case the company's markets are reduced. They are plans for times of economic recession. 4- The plan should contain a summary of capital expenditures, the requirements of working capital and strategies to raise funds to make these investments. The contingency planning Planning is not just about making forecasts. Forecasts tell what are the most likely events, but planners have to deal with unlikely as well as probable events. If we think in advance what inconveniences may arise, we are less likely to ignore the danger signs, and we can respond to them more quickly. Companies have developed several ways to ask questions about "what if?" both with respect to individual projects and the company in general. For example, planners often consider the consequences that a plan can have in different scenarios. In one of them, for example, high interest rates cause a reduction in world economic growth, and reduce the price of consumer goods. In a second scenario, a boom in the domestic economy, high inflation rates and a weak currency are expected. Think about what options exist Planners should think about whether the company has opportunities to take advantage of its advantages by applying them in entirely new areas of activity. They often recommend entering a market for strategic reasons; this is not because the immediate investment has a value positive net present but because the company introduces new market or open options and then make valuable investments. Impose coherence Financial plans are based on the relationships that exist between companies' growth plans and financial stocks. Also, they must ensure that the company's objectives are coherent with each other. In addition, the objectives that are expressed with accounting ratios cannot be applied if they are not translated in terms of business decisions. Financial planning models Financial planners often use a financial planning model to investigate the consequences of different financing alternatives. The models of financial planning help in the process of making financial planning forecasting financial statements easier and more economical. The models automate an important part of the planning process, which otherwise would be boring, prolonged and laborious. Previously, the programming of these financial planning models required long hours of work by computers and highly qualified personnel. Currently there are standard spreadsheet programs, such as Microsoft Excel, which are the most used to solve complex financial planning problems. The complete financial plan of a company is a considerable document. But in the smaller ones, financial plans fit in the head of the financial director. However, the basic elements of these plans are similar, regardless of the size of the companies.
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