Types Of Financial Planning And Financial Plans
As a rule a long and overly detailed description of the general issues makes you yawn, it has little use in practical terms, and the main effect of these definitions is that they are forced the readers to be tired and criticize severely these authors. In order not to fall into the same bad situation, we would like to give the bare minimum of information about the types of financial planning, selecting just the practical significance of the diversity of financial plans.
Time periods for which financial plans are prepared may be different. Usually financial plans are prepared on a rounded period – month, quarter, half year, 9 months, 1, 2, 3 or more years. This tradition has not developed itself, and due to ease of operation. It is much easier to plan and use it for, say, a year than a year and 10 days. Time span, for which the financial plan is compiled is essential. The most accurate are usually short-term plans. The least accurate are long-term plans. This is easily explained. It’s much more difficult to give an accurate forecast for a month, than for one day. The longer the planning period is, the greater may be factors, unimportant or unknown at the moment, which could significantly affect the situation in the future. None of the forecast can predict all future force majeure, this should have foresight. Hence, again it must be stressed the importance of the adjustment mechanism of the financial plan, taking into account changes in various internal and external factors. In the absence of such a mechanism, a financial plan drawn up to 5 years may be unrealistic in a few months.
So, short-term plans are easier to make and they are more accurately. Therefore, the short and long term plans are somewhat different.
The difference in preparing short-and long-term financial plans may also occur in the degree of details. Typically, short-term financial plans are more detailed. It’s more realistic to consider quite minor figures for a relatively short period of time than in the preparation of long-term financial plan.
Financial plans may be main and auxiliary (functional, private). Supporting plans are designed to provide basic preparation plans.
For example, the basic plan includes targets for revenue, costs, tax payments, and many others. But to reduce all the indicators in one plan, i.e. to make a basic plan, you must first make a number of subsidiary plans almost on each indicator. You should lay out the amount of revenue, cost and value of other indicators. And only then we can bring it all together, getting a basic plan.
Plans can be formed both within individual business units and across the company as a whole. Consolidated aggregate financial plan of the company, which includes major plans of individual units, will be a general financial plan
Users of financial plans may be different – the tax authorities, statistical agencies, lenders, investors, shareholders (founders), etc.
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