Financial planning is a necessary step which has to be taken to ensure a well-settled and better financial condition in one's future. Financial planning has to be taken very seriously, after all the future totally depends on it. In simple words, it is a gradual process planned by a company or a family to save money which can be reserved for future use. It can be done by any entity who has a regular or irregular income, like a person, family, company, etc. It is primarily thought upon by several business people and firms, especially in the times of economic recession.
Financial planning in a business is very essential as the input and output of a business is totally dependent on the money available. It comprises three principle steps like estimating and forecasting, preparing a budget, and controlling the outflow of finances.
Estimating and Forecasting
A short-run and long-run prognostication needs to be prepared to make sure that the business is ready for the next few months, and the next few years or decades. Short-run planning should include the company's customer base, goodwill, expenditure patterns and possibilities in the near future, and other factors which effect the income and expenses. Long-run planning is generally a difficult task, as one might not know about the success and failure of the company in the time to come. However, with periodical forecasting, one can certainly be able to carry out a long-run plan successfully.
Preparing a Budget
Generally, the term 'budgeting' contains three principle sections, like the capital budget, the cash flow budget, and the operating budget. The capital budget gives a brief and rough understanding of the anticipated expenditure for fixed and capital assets, which are essential to operate a business. The cash flow budget ought to be based on the estimated cash flow to predict financial gain, and expend it suitably as it is received. The operating budget normally prognosticates expenditures and gains. It estimates mainly the expenditures due on a periodic basis.
Controlling the Outflow of Finances
Financial control is very essential to ensure that the expenditure is not more than expected, and to lower the possibilities for errors and employee larceny. Few measures include needing two signs, on each single check, or putting a limit to the number of individuals accessing the money box or who counts the money in the cash register every hour. Limiting the use of equipment that are generally over-used by many employees, and lessening the over-use of office equipment and stationery, electricity, and some other factors, is also a good measure taken for controlling expenditure which supports financial planning.
Financial planning may sound intimidating, and obligatory needs to be performed by a financial planner. Some companies have a misconception that financial planning is all about reducing the number of employees or the expenditure incurred on them. However, it is just an act of monetary planning about the future sources of income, for running the businesses. Moreover, if one needs to borrow money, the lending financial institution would thoroughly screen to check if he has done financial planning, and then approve the loan. Using the industry stats to research and study financial planning effectively, would certainly help the business in its future. Using the collected data, one should compare the income over expenses, determine savings, examine potential expenditures, and study the customers for efficacious financial planning.
Financial planning is an activity that certainly cannot be ignored by businesses, as the success and failure of the business is entirely calculated considering the pecuniary factors.
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