Financial planning is the guiding document for making decisions about investments in companies, taking as reference their historical data and the economic environment, to forecast future resource needs. While strategic planning establishes the corporate goals, the financial one focuses on the analysis of results and the projection based on the general economic conditions, the competitive position of the company, and its forecasts of profitability and growth.
That is, to achieve the strategic objectives of the business, it is necessary to know what resources it has, what the financial needs will be, what macroeconomic factors influence it, how capital will be invested, and what financial instruments should be used to maintain the necessary cash flow. that allows productive activity.
And most importantly, you don't have to this entirely on your own. Whether it's just you or it's your company, you can find financial planners to get help in this aspect. That's crucial that you seek professional help for your company/business.
The references for conducting financial planning are contained in the most recent balance sheet, and this helps establishes strategies, objectives, and performance indicators that will guide decision-making about financial and working capital investments.
Goals when planning business finances
Optimal resource management has to do not only with how they are applied but also with how to maximize them.
To these ends, financial planning focuses on:
- Minimize risks
- Seize opportunities
- Anticipate needs
- Find the best performance
- Guarantee the security
It is essential to consider these purposes when it comes to projecting sales and expenses, managing assets, and making investment and financing decisions.
Investment and financial planning
All the aforementioned aspects come together in the importance of financial planning as an investment base because when the past results are known, the current situation and the future projections of the company can make better decisions about capital management.
One of the most important tools when making financial decisions is the so-called Balanced Scorecard, which helps to track key performance indicators of a financial plan to make timely decisions, but also to detect and analyze business opportunities.
In this sense, the design of different scenarios allows evaluating the technical, operational, and financial aspects of possible investments to decide if they are feasible and convenient for the company.
The investment project as a tool
For economists and chief financial officers, the term "project" is generally understood as a systematic collection of information designed to support an investment decision. Thus, an investment project is an analysis to determine a priori whether or not it is a valid bet.
Generally speaking, this process follows six steps:
Step 1: Identification
Before preparing an investment project and its financial planning, all macroeconomic analysis work must be carried out, with a view to formalizing concrete ideas about which are the priority projects according to the general situation of the company.
Step 2: Preparation
Once an opportunity area has been identified, studies are carried out to verify whether the investment project is technically, economically, and legally feasible and whether it will be profitable.
It is based on the analysis of the results of these studies that the different possible variants of the investment project are decided, as well as the provisional registration of income and expenses of each one of them.
Step 3: Analysis
This step is the one that will make the final decision on the execution of the project insight. For this, there are two types of known analysis: the financial analysis on the profitability of the business and the economic analysis on the profitability for the community or industry in which it participates.
The first has the objective, according to current and future conditions, of verifying that the invested capital will be recovered after the income generated exceeds the expenses (investment and operation) in a more or less long period of time.
The second, also called social analysis or cost-benefit analysis, aims to verify its contribution to the economy.
Step 4: Decision making
Here the time is established to accept or reject the project according to the level of satisfaction of the partners.
In case the project is rejected, new studies can be reconsidered or promoted for its application.
If accepted, it goes to the execution phase.
Step 5: Implementation
It is time to review the technical and financial studies and the project schedule.
This is intended, on the one hand, to delve into the details of the operations to be carried out; and on the other (in case the period between the first and fourth steps has been long), update the prices of raw materials, costs and products used.
Regarding the schedule, the necessary actions to start the project are implemented in five key areas:
- Construction of infrastructure or rent
- Installation of equipment
- Recruitment and training of personnel
- Launch of management systems
- Implementation of operating contracts
Step 6: Operation and control
The last phase consists of verifying the good compliance with the investment calendar to analyze any deviation from the functions described in the original plan, and implement the respective corrective actions in the event that the latter occurs.
An investment project analyzed and carried out in accordance with this procedure will have greater opportunities for success; but above all, it must be based on financial planning that considers the present situation of the company and its future forecasts.
Defining what the company's strategic goals are, what investments are required and how they will be financed will ensure the profitability and competitiveness of your business.