Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. A company usually creates a financial plan immediately after the vision and objectives have been set.
Objectives of financial planning
- Determining capital requirements: This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements.
- Determining capital structure: The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and long- term.
- Framing financial policies: with regards to cash control, lending, borrowings, etc.
Importance of financial planning in a business
- Long term business view
With sufficient financial planning, businesses can have a clearer long-term view of their allocation of funds. Analyzing and deploying funds to various departments of your business can have a positive effect in the long run.
Financial reports give deep insights into the functioning of a business. The top management and business owners take these financial reports as a guide to foresee the organization in the future. This calls for a decision that is based on insights.
- Marketing strategy
Business marketing strategiesgive well-framed tasks for a business, starting with strategizing, executing and implementing. Planning your finances well will help your business to identify the important strategies that need to be implemented. The actions that you plan for your business should be measurable and should be able to generate more business.
The marketing team of your business may be experts at creating campaigns, knowing all the possible areas of marketing that are working wonderfully well and those which need some improvement. However, in the end, it all comes down to the financial advisors who will then research and use statistics and reports to analyze if investing such amount in a particular strategy is even worth.
While drafting a business marketing strategy, one needs to see the ratio of expense and profits on every strategy that is formulated for business. This gives you a brief idea as to which strategy is worth implementing and which is not.
- Proper and clear use of funds
A smart and powerful benefit of planning a financial program is judiciously utilizing all the funds that you have. This can be done by looking at all the assets and liabilities of a business.
Planning well in advance all the taxes that an organization is liable to pay, overheads, expenses, salaries, miscellaneous expenditure etc., will give you a good idea of how to manage your funds. A team of financial advisors will give you every possible solution on how to plan your finances well. Prioritizing important zones/sections of your business will help you identify where to invest on an urgent basis and which sections of your business can be invested in a later stage.
- Measure profit and loss
The reports compiled by the finance team of your organization often helps the organization to evaluate the profits and loss of the organization. Furthermore, these help the business to evaluate which strategy worked well for your business. This showcases the net profit a company managed to achieve and what was the prime reason for it. There is no point of making money until and unless you are able to make profits that are beneficial for your business.
For all the small business owners, we urge you to consider financial planning for your business to maintain business stability.
- To measure liability and asset
Who monitors the assets and liability of a business? What is the ratio of liabilities and assets for your organization? For the stability of a business, the financial team regularly monitors the assets and liabilities of a business. This gives you an idea of any improvements that your business is in need of and how to increase your assets and decrease your liabilities. This gives an overview of what areas of the organization require investment on a prior basis.
Financial planning process(step by step)
- Determine your current financial situation
- Develop your financial goals
- Identify alternative courses of action
- Evaluate alternatives
- Create and implement a financial action plan
- Re-evaluate and revise the plan