Financial planning

Planning has been a continuous theme throughout this book. We have stressed the importance of planning as a managerial function and offered insights into planning your career. Financial planning involves an analysis of the short- and long-term picture of money flows to and from the firm.

The overall objective of financial planning is to optimize profits and make the best use of money. It's probably safe to assume that we all could use more or better financial planning in our lives.

Financial planning involves three steps: (1) forecasting financial needs—both short- and long-term needs, (2) developing budgets to meet those needs, and (3) establishing financial control to see how well the company is following the financial plans. Let’s look at the important role each step plays in the financial health of an organization.

Forecasting is an important component of financial planning. A short-term forecast is a prediction of revenues, costs, and expenses for a period of one year or less. This forecast is the foundation for most other financial plans, so its accuracy is critical. Part of the short-term forecast may be in the form of a cash flow forecast that projects the expected cash inflows and outflows in future periods, usually months or quarters. Naturally, the inflows and outflows recorded in the cash flow forecast are based on the expected sales revenue and on various costs and expenses incurred and when they will come due.

A long-term forecast is a prediction of revenues, costs, and expenses for a

|period longer than 1 year, sometimes as far as 5 or 10 years into the future. This

forecast plays a crucial part in the company's long-term strategic plan. Remember, the strategic plan asks questions such as: What business are we in and should we be in five years from now? How much money should we invest in automation and new plant and equipment over the next decade?

The long-term financial forecast gives top management, as well as operations managers, some feel for the income or profit potential possible with different strategic plans. Additionally, along with the short-term forecasts, long-term projections assist finance managers with the prepa­ration of company budgets.

Words you may need:

Insight - понимание

involve - понимать

objective - цель

assume - принимать

profit – польза, выгода

forecasting -

need - прогнозирование

prediction - предсказание

revenue - доход

inflow - приток

Дата добавления: 2014-10-22