People, every day, seek to manage our money well, but few of us plan to find the most efficient way to spend or invest it. Companies also seek this efficiency, the difference with people is that firms do plan.
Financial planning is a very important weapon that organizations have in decision-making processes. For this reason companies take this tool very seriously and dedicate abundant resources to it.
The final objective of this planning is a "financial plan" in which the financial tactics of the company are detailed and described, in addition to making future forecasts based on the different accounting and financial statements of the company.
What the plan intends is to propose some objectives to be met (possible and optimal) to be evaluated later.
Although obtaining this financial strategy is the ultimate goal of planning; This does not occur with vague observations, made above, of the financial situations of the company (financing and investment), it is only presented after an extensive and conscientious analysis of all the effects, both positive and negative, that can be presented for each decision made regarding financing or investment. These decisions must be taken together and not separately, as this could lead to problems by not taking into account decisions that have consequences for other sectors of the company.
Optimizing:
There is no perfect plan. To achieve a plan close to the optimum, trial and error processes are carried out.
Good planning should lead the manager to take into account the events that can derail the good performance of the company or at least hinder it, this in order to take measures that counteract these effects. All the analyzes and observations lead us to think that planning is not just forecasting, since forecasting is taking into account the probable future, leaving aside the improbable or surprises (desirable or undesirable).
Requirements:
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Forecast
Optimal financing
Control plan development
The Requirements for Effective Planning are:
- Forecast: The probable and the improbable must be anticipated, be it of benefit or detriment to the company. Optimal Financing: There is no optimal plan. "Financial planners must deal with unresolved issues and cope as best they can, based on their judgment." Balancing debt, income, costs, cost of capital, rate of return, etc., is not easy but it is the task of the CFO of a firm. Look at the Development of the Plan: Observe if the path that has been taken has been viable and if not, try to make the necessary modifications. "… long-term plans serve as benchmarks for judging subsequent behavior."
Another point in which the financial planner must be careful is not to get too involved in the details because items of great importance within the strategy can be overlooked.
As there is no theory that leads to the optimal financial plan, planning is carried out through trial and error processes, before finally deciding on a plan, various strategies can be formulated based on different future events. When a good number of plans are projected, planning models are used that allow to foresee future consequences, although they do not give the optimal plan, they do make the task simpler and abbreviated and can bring us closer to it.
