Planning in business is very important. It provides a guide for the overall operation of the business. Likewise, financial planning provides a structure to the way finances are handled within the organization or company. Financial planning manages the flow of cash in and out of the business. Essentially, it’s impossible for an organization to function and be financially stable without financial planning.
Analysis of Financial Reports
Financial planning entails the analysis of financial reports. Without analysis, it’s difficult or impossible to make plans. When the business examines its financial records, it’s able to see the growth and present condition of the business. Financial planning helps to compare different situations and allows for a thorough understanding of how cash is earned and expended in the business. Eventually, it becomes an important factor in determining which areas the business needs to improve on in terms of finances.
In detail, the assets of the company or business are best monitored through financial planning. Since financial reports hold records of expended, earned and remaining assets, financial planning becomes crucial in keeping an up-to-date record of the company’s resources. Financial planning analyzes the current assets, fixed assets and intangible assets of the business. Financial planning or financial projection considers these three factors before deciding how best to expend and gain resources.
Just as financial reports hold records for the assets of the business, they also state the different liabilities of the company. Financial planning also requires an analysis of the company’s current liabilities, long-term debt and owner’s equity. This helps the business keep track of liabilities due in the near future. It also helps the company plan out how to finance and devote resources to its debts before they create any trouble for the operation.
Income and Profit Loss
Financial planning requires the review of financial reports to encourage an understanding of income and profit loss. This is important because it helps the business identify its sales or revenue, cost of goods sold/cost of sales, gross profit, operating expenses and net income. Knowing these factors can help the business identify which ventures have been profitable and which need improvement.
Following the examination of financial reports, the business and those involved in it become more proactive. Through financial planning, different conditions, problems, losses and gains are predicted. Financial planning allows managers and top management to think ahead of the current situation and makes them more prepared. Different business opportunities can also be identified via financial planning.
- Photo Credit finance image by Chad McDermott from Fotolia.com
Importance of Strategic Planning in Business
Strategic planning is important for businesses because it matches business strengths with marketplace opportunities and provides direction to meet goals. A strategic...
Financial Planning & Analysis Job Description
The financial planning and analysis department within a corporation is responsible for preparing the annual plan and long-range or five-year plan. Financial...
Importance of Corporate Planning
William Wordsworth, famed British poet, once said, "In modern business, it is not the crook who is to be feared the most,...
Importance of a Business Plan
No matter how small your business is, creating a business plan is always a good idea. A business plan that includes thorough...
What Is the Importance of Financial Planning?
Financial Planning is a process of setting realistic goals and then achieving them through investment planning, insurance planning and tax planning. To...
The Importance of Personal Finance Planning
Personal finance planning is the key to becoming more stable in almost every facet of your life. From considering career options to...
The Importance of Financial Strategy
A financial strategy is an important aspect of any business. Financial strategies should be discussed and shared with company shareholders, executives and...
The Disadvantages of Intrapersonal Intelligence
Intrapersonal intelligence is one of eight types of *primary intelligence* theorized by the psychologist Howard Gardner, whose theory describes the different ways...
Negotiable Commission When Buying a Home
All commissions are typically negotiable in the state in which you are planning on buying a home. Learn how to negotiate commission...