How financial planning is important?
Financial planning is an evaluation of an individual’s current pay, asset value and current plans. There are a series of steps so that the evaluation is done for saving in future and reserved income for short term and long term investments. Everyone is in the need of financial planning as everyone is thinking of getting a retirement and whenever you are planning to save money, you need a financial plan so that you can have a better future and you do not have to worry about the costs and investments that are going to happen in the future. There are three types of reports by which you can prepare a financial plan which are balance reports, income reports and cashflow reports. As the names suggest, these reports are a summary of your balance amount in the business after all the costs are deducted, income reports represent the total income after calculating the profit and losses that are happening and cashflow reports represents a summary of the cash flowing in various investments. By studying these kinds of reports, you can judge the investment that is going to incur in the future. A financial plan Is basically a representation of one’s finance statements. It is a combination of financial forecasts and projections. Financial forecasts are statements which are related to result of operations and projections are based on future perspectives. By these reports, a solution is proposed representing past, present and future results t individually. Whenever you are doing a business, you need to inherit your capital investment so that you can be saved in the future from the losses that can take place in the coming future.
A sound financial plan is essential in running of a success business enterprise and it provides us with below facilities:
- It makes a firm better prepare for the future which means that it helps in forecasting what may happen in different business conditions. It is based on the predictions of all possibilities. For example, if you are giving an exam of board class, you plan on all the possibilities of the outcome. Whether you can pass in the exam or you can fail or it might be the case that you fail in one or two subjects. You plan according to all the possibilities which is the same as the financial plan in business.
- It helps in avoiding the business shocks and surprises by preparing a blueprint to face different types of situations.
- It helps to co-ordinate various functions as it helps in providing clear policies and procedures of sales and production.
- It is a proper utilization of finance and gives a detailed plan of actions such as reduce waste, duplication of efforts and gaps in planning. All of these functions are prepared under financial plan.
- It helps you link present with future by anticipating sales, growth etc.
- It is a link between investment and financing decision on a continuous basis.
- It makes evaluation of actual performance easier by spelling out detailed objectives for various business strategies and actual performance strategies.
Conclusion: As the people are getting more richer, there is a burden of correct and wrong investment due to which various businesses fail to operate and preparing a financial plan for all the businesses is an important aspect in saving these businesses in the long run.