Financial Planning is an act of framing plans, policies, processes, strategies and budgets concerning the financial activities of an organization. This ensures appropriate and efficient investment and financial policies. The significance can be clearly outlined as-adequate capital needs are to be secured. This implies that you cannot create sufficient funds without proper financial strategies and measures. This can only be accomplished by having a sound financial planning policy. You can find out about financial planning on this homepage.
A good financial planning policy should define both short-term and long-term goals and objectives. It should lay down both short-term and long-term monetary objectives. For example, the short-term objectives could be achieving a specific target rate of return on investment or increasing the net worth. On the other hand, the long-term objectives could be reducing the debt balance, increasing cash flows, and achieving certain target ratios of assets to liabilities. Bear in mind that financial planners can set their own objectives.
Once financial goals are defined, a financial plan is made to achieve those goals. Two main types of financial planning policy are defined benefit and single benefit funds. A financial benefit plan provides the employee with both income and benefit. A single benefit fund does not provide any income or benefit to the employee; however, the firm guarantees to pay the employee the entire death benefit if he/she dies. Both the types of funds are very useful for meeting the retirement needs of employees.
An important thing to note while formulating financial objectives is how they will affect the firm's functioning. For instance, a long-term objective might be to reduce the cost of maintaining the current employees. However, this might be achieved through procurement strategies. If the objective of the financial planning is to increase the firm's value then investment in fixed assets and equities is a viable option. Again, financial planning with an overall goal in mind will help in determining the optimal mix of investment options.
To evaluate the performance of the financial planning process, periodic evaluation of the plans should be done. The evaluation of the performance of the financial plan should assess its impact on firm growth and cash flow. Other factors that should also be considered are the effect of the plan on the firm's ability to meet its objectives. The results of the analysis should provide an estimate of the gains/losses, whether the objectives were attained and if so, the time period required for the next attainment of those goals. Financial planning with financial goals and objectives in mind can lead to financial success for the employer as well as the employees.
It is mandatory for employers to form a proper strategy for long-term financial management. Moreover, it is important for employees to form their own plans for the future. While formulating financial planning objectives, they must keep in mind their individual performances and the impact on the achievement of firm objectives. Formulating a realistic budget set forth goals and strategies in relation to those objectives will ensure success in the process. You can read this post to get more information on this subject: https://www.huffpost.com/entry/7-yearend-financial-plann_b_13518726.