What is Financial Planning? Objectives & Components of a Successful Financial Plan

Introduction

Companies or businesses must do proper financial planning because finance or accounting is essential for every successful business. 

The well-maintained financial account makes a good impact on the customer as well as on the investors. In the competitive market, businesses have to manage their cash flow properly. The balance sheet of the companies or organization’s financial account is higher than the cost accounts. They have higher funds than the cost of the operational expenses. 

An excellent financial planner includes the cost, cash flow, investments, savings, etc. Proper planning methods help the organization to reach the goal and increase profits. Financial ratios help businesses to build the appropriate strategies for product selling. 

Maintaining the companies’ economy was quite challenging for them, but they reached their goal with proper plans. Maintaining finance is difficult because companies or businesses use accounting software to manage their financial accounts.

With the help of accounting software, industries can get an overview of the market, and according to that, companies easily maintain their cash flow and update their planning for finance. 

Financial Planning for Businesses

Financial planning is done by the companies or businesses to achieve their goal and objective for producing the product. 

Companies have to handle their economy for increased sales and profits. Businesses’ account payable and account receivable is also part of the financial planning. Well-maintained account receivable and account payable in the balance sheet of the companies reflect the proper flow of the cash as per the planning. 

Here is some importance of financial planning for businesses. 

Assess the sales environment

Through the economic planning business efficiently assesses the sales environment. Continually increasing sales help the companies to grow in the competitive market. Also, the sales team of the companies monitors the deals as per the planning. 

Business vision and objective

When established, companies then have an objective in their mind to complete the goal. Businesses or companies make a proper plan for handling their budgets. 

Calculate the total cost

Manufacturing industries must manage the cost of production. The companies figured out the profit is less than the cost – that means it makes a negative impact on the companies’ finance. So, calculating and managing the price is a part of economic planning. 

Clear company goal

The planning starts from the one question, what is the company’s goal, and what does the company want to achieve? Based on the company’s purpose, economic planning is done for the next quarter year or a year or two years.  

Smart budget allocation

Budget is essential for the business, industries, or organization. Without the funding, companies faced financial disturbance. A substantial budget is part of the financial planning in the companies. 

Risk Relieve

Companies avoid the risk according to financial planning. Businesses get reliability from the unknown economic risk and get out from the economic crisis through the funds.  

Also, financial plans include identifying the risk and making a budget, amount of resourcing, expenses, etc. Companies also decide the period of the planning because they have to update their strategies after some time. 

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Components of Financial Planning

There are some essential components of financial planning for the business or companies. This component is helpful to make a proper financial plan. 

1. Income statement

This is the most essential component of the financial plan for businesses or companies. This statement is also cold as a profit and loss statement. Income statements help the businesses to get an overview of the market and help to understand the chance of maximizing profits. 

Income statements include the gross margin, revenue, and cost of production. This statement is prepared for only three months. After three months, companies create a new income statement.

2. Cash Flow Statement

Cash flow is essential for every company or industry, and cash-flow statements are as important as income statements for financial planning. This statement shows the cash flow of the businesses. 

How much cash have paid?

How much cash have they brought to the companies?

How much cash remains to collect? 

How much does a company have a cash balance? 

The answers to the above question are described in the cash-flow statement. 

Also, know about how to IMPROVE CASH FLOW MANAGEMENT OF YOUR BUSINESS

3. Balance sheet

The balance sheet is a snapshot of the economic position of the companies. When investing in businesses then they first look at the balance sheet. So, we say that a balance sheet is an essential document for the companies. 

Businesses or companies use the balance sheet while doing financial planning. This component includes credit card bills, loan amount, account receivable amount, account payable amount, etc. 

4. Sales forecast

Product sales are essential for businesses or companies. If the sales are high, then chances to increase the profits. So, every business needs strategies for selling products. Also, companies prepare for the sales in the features. 

The sales forecast is essential for making the finance plan. Well, forecast sales make a good impact on the investors and bankers about companies. 

5. Tax management

Companies neglect this essential component for financial planning. They do not know about the tax making a necessary impact on their organization or personal income. This component helps the businesses to avoid paying taxes on time and no chance to hefty taxes. 

6. Break-even analysis

Break-even analysis told the businesses how many units of a product must be sold to cover production costs. Deciding the pricing for a particular product or service is necessary to the business. Break-even analysis helps the companies to determine the best price for the products. It helps to analyze the cost and maximizes the revenue of the companies or industries. 

Objectives of Financial Planning

Companies or businesses manage their economy with the help of a financial plan. In the competitive market, companies or enterprises face several challenges to fulfill their goal. There are some objectives of the economic planning for the organization.  

1. Ensuring that enough funds are available

Sometimes situations become critical in companies, they don’t receive payment from the vendors, and at the end of the day, they must pay the amount of the raw material or other services. This time companies or businesses used the fund which they saved for the emergency time. So proper financial planning helps the business to face the economic problem. 

2. Estimating the resources and time for funds

Through a financial plan, the business gets the time to generate funds from various sources. These funds are collected by decreasing the cost expense, avoiding the hefty taxes, investing, increased sales, etc.  

3. Creating the structure for capital

Creating the structure for capital is an objective of financial planning. This includes both the short-term and long-term debt or equity ratios of the companies. Through capital structure, companies can determine their investment.  

4. Avoiding unwanted funds

Funds are used when businesses feel a shortage of funds. The use of funds cannot earn any returns but increase the cost of the companies. Financial planning ensures the companies avoid unwanted funds. 

5. Base for Financial Control

The companies compare their revenues with the estimated payment and actual cost with the estimated cost as per economic planning. Through these strategies, companies can control their economic flow. 

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Conclusion 

Financial planning is an essential part of the businesses or companies making an economic decision for providing the long-term and short-term benefits. Businesses or companies eliminate unwanted expenses and help make the correct investments. Companies create the strategies for their economy to help make a quick and right decision for the business.  

StartUp or leading organizations need economic planning to handle their economic flow. The financial manager made the proper plan based on the current economic position of the companies. 

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