Financial Planning And Its Basic Technological Principles
From the general point of view, one can distinguish the following levels of financial planning: long-term (investment) and short-term (current) planning.
Short-term financial decisions are usually easier to take than long-term. However, this does not mean that they are less important. The company can develop a very attractive investment project to determine the optimal ratio of debt and equity capital to develop the perfect policy dividends and still have no success because nobody has bothered to have enough cash to pay its current bills, i.e. company is not serious about issues of current budgeting.
The implementators of long-term financial plans tend to be dealing with aggregate investment performance and not immersed in the various parts. Numerous small investment projects are brought together and treated as one large project. For example, for each business unit holding developed three possible activities:
-the plan of aggressive growth, involving large investments, the development of new products, entering new markets;
-the plan of normal growth, suggesting growth in unit-growth market, and not due to attack on competitors,
-the plan of reducing costs, suggesting to minimize the required investment.
The conditions, that determine the effectiveness of financial planning, derived from the goals of this process and the desired result. In this sense, there are three basic conditions for financial planning:
-the availability of forecast model. The financial plans must be drawn in as accurately as possible determinants of prognosis. Meanwhile the prediction may be based on historical information, using the apparatus of mathematical statistics (expectation, trend lines, etc.), the results of predictive models (statistical models, taking into account the relationship of factors with each other and external factors), peer reviews, etc.
-the absence of the appropriate financial plan. To date, there is no model that solves for the manager, which of the possible alternatives should be adopted. The decision is made after studying the alternatives, based on professional experience and, perhaps, intuition, leadership. The problem of finance manager is to provide leadership of all possible palettes of possible outcomes of the planning period.
-Control over the realization of the financial plan into effect. Achieving long-term planning is impossible without a current plan, subject to these long-term plans. It is clear that no long-term plan cannot be executed with absolute precision. Requirement for planning accuracy should be increased as we approach the end of the planning period at the time of planning. Every plant manager should seek opportunities to improve compliance month plan, knowing that the intended result of the annual plan will not coincide with the fact. This is the reality of today’s economic existence.
Let’s define basic technological principles of financial planning.
-the principle of compliance is that the acquisition of current assets (working capital) should be planned mainly due to short-term sources. In other words, if the company plans to purchase consignments, to resort to finance the deal to issue bonds not to be. You must use the short-term bank loans or commercial loan provider. At the same time, for the modernization of equipment should be involved in long-term sources of funding.
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