Businesses might benefit from financial planning by reducing market media uncertainty and its negative implications.
Financial planning’s main goal is to inspire financial resources for economic, technical, and social projects, as well as to measure efficiency based on final financial results.
The following are the major responsibilities of financial planning:
– financial projections of the sources and sizes of moneys received and payments; – motivation of rational flow of funds, synchronization of receipt with payments in specific time periods; – definition of effectivity of different types of capital used in the creation of the enterprise and its functioning during the planning period; – definition of effectivity of different types of capital used in the creation of the enterprise and its functioning during the planning period; – definition of effectivity of different types of capital used in the creation of the enterprise and its functioning during the
The wide capabilities of financial planning allow effective economic and financial decisions to be made. This, however, demands effective process organization, i.e., the sequence of all management operations linked to the creation and fulfilment of financial responsibilities.
Financial planning is linked to marketing, business, production, and other sorts of plans, and it is aligned with the company’s goal and overall strategy.
The following concepts guide financial planning:
1. The principle of correspondence.
Current asset financing should take precedence over short-term finance. Long-term sources should be attracted to engage in the modernization of essential methods at the same time.
2. The notion of constant demand in own present assets.
The quantity of current assets should be larger than the total of short-term accrued costs in the company’s anticipated balance. A percentage of current assets should be funded by long-term sources (long-termed credits and own capital). In this case, the firm is less likely to have a current asset deficit.
3. The money-abundance concept.
During the planning phase, put aside some money to maintain safe purchasing discipline in the event that one of the payers misses a payment date.
4. The investment profitability concept.
It is critical to choose cost-effective financing alternatives (financial leasing, bank loan credit).
The risk equation premise is number five.
Long-term investments, particularly those with a high risk profile, are best supported using borrowed funds.
The concept of market demand adaption is number six.
7. The profit maximization concept.