financial planning

We explain to you what financial planning and what its objectives are. Also, how it is classified, why it is important and examples.

Financial planning must consider deadlines, costs and objectives in detail.

What is financial planning?

In the field of management and the finance, is known as financial planning or financial planning when process to determine how a organization, business or person You will manage your capital resources to achieve your stated goals. In simpler terms, it is about developing a financial plan, that is, a budget and / or a scheme from expenses that allows you to organize money management in an efficient and convenient way.

This financial planning process must contemplate 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 exercised in advance, 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

Financial planning should outline a detailed examination of current financial status.

The objective Fundamental to financial planning is the elaboration of a financial plan, that is, a roadmap towards the business objectives set, regarding the management of finances and capital resources. In other words, a financial horizon, a strategy management of money to get the most out of it in favor of the fundamental guidelines of the organization.

To do this, every financial planning exercise should draw up a rigorous and detailed examination of the current financial state 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, forecasts and projections also intervene in this, in order to anticipate unforeseen events and be able to get as close as possible to the final goal.

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 cost opportunity of the company.
  • Guarantee the financial durability of the organization.

Types of financial planning

Short-term financial planning encompasses projections of one year or less.

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 range of variables and much greater 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 it comes to decision making. Like people, companies have a budget and certain financial limitations within whose margins they must manage to achieve their objectives, so a careful 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, involving numerous variables and environmental studies. Let us remember that in these disciplines the borders 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.

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