Financial planning of a business
Corporate financial planning is the process of determining what a company’s financial needs and goals for the future are, and how best to achieve them. Corporate financial planning considers the individual circumstances of the company as well as its broader economic context to determine which activities and investments would be most advantageous and appropriate. Generally, because short-term market trends are more predictable, short-term corporate financial planning involves less uncertainty and more readily adaptable financial plans.
Balanced corporate financial planning should elucidate how the company can achieve its goals and priorities while upholding its values. A financial plan for a corporation achieves at least two aims.
First, it forces management to think about the company’s prospects for business success objectively by basing their analysis on company finances. It also gives lenders and investors a good reason to invest into the business performance, by showing the growth and profit projections. Unrealistic or unbalanced financial plans or plans that understate profits tell investors to reconsider their investment or evaluation.
As a basic matter, three financial statements form the core of a corporate financial plan: income statement, statement of cash flow, and balance sheet. These statements clarify how much profit the business earns, and how much cash actually comes in, compared to the income reflected in accounts receivables. They also detail the relationships between corporate liabilities, corporate assets, and owner equity.
Financial planning enables a business to determine how it will afford to achieve its objectives and strategic goals. A business typically sets a vision and objectives, and then immediately creates a financial plan to support those goals. The financial plan describes all of the resources and activities that the company will require—and the expected timeframes—for achieving these objectives.
Financial planning is crucial to organizational success because it compliments the business plan as a whole, confirming that set objectives are financially achievable.
The financial planning process includes multiple tasks, including:
Confirming the vision and objectives of the business
Assessing the business environment and company priorities
Identifying which resources the business needs to achieve its objectives
Assigning costs business costs centers included in the plan
Quantifying the amount of equipment, labor, materials, and other resources needed
Creating and setting a budget
Identifying any issues and risks with the budget
Establishing the time period of the plan or planning horizon, either short-term (typically 12 months) or long-term (2 to 5 years)
Preparing a full financial plan summarizing all key investments, budgets and departmental costs
Generally, the financial partner role includes three areas:
Strategic financial management;
Determining financial management objectives; and
Managing the planning cycle itself.
Connecting business partners and teams to financial plan
