Financial satisfaction results from an organized process known as financial planning. To achieve a company’s goals, managers must identify and set priorities.
Financial planning is the process of managing your money for economic satisfaction. This planning process puts you in control of your financial situation. A comprehensive financial plan can improve the way you run your business by reducing uncertainty about future needs and resources. The specific benefits of financial planning include:
Increased protection of future financial resources;
Greater control, avoiding excessive indebtedness, bankruptcy and dependence on third parties for economic security;
Better relationships resulting from well-planned and effectively communicated financial decisions;
A sense of freedom from financial worries gained by looking ahead, anticipating expenses and achieving their economic goals.
We make hundreds of business decisions every day, some are simple and routine, others are more complex and can have an impact. The financial planning process is a logical procedure that can be broken down into six steps:
(1) Identify your current financial status
(2) Develop financial goals
(3) Identify courses of action
(4) evaluate the alternatives
(5) Create and implement a financial action plan
(6) reassess and revise the plan.
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Step 1: Identify your current financial situation
During this first step of the financial planning process, you will determine your current financial situation with respect to: balance sheet and your company’s balance sheet. The preparation of a list of current asset and debt balances as well as amounts spent on various items forms a basis for financial planning activities.
Step 2: Develop financial goals
You should periodically review your financial goals. The purpose of this analysis is to differentiate your needs from your wishes.
Specific financial goals are essential to financial planning. Your financial goals may vary depending on the current situation of your business. Maybe it’s time to make a new investment, partner with startups, launch new services or products, or maybe it’s time to bring in a financial insurer.
Step 3: Identify courses of action
Developing alternatives is crucial for making good decisions. While many factors influence the available alternatives, possible actions generally fall into these categories:
Continue with the same action plan.
Develop and improve the current course.
Change the current situation.
Take a new action plan.
Not all of these categories will apply to all decision situations; However, they represent possible courses of action. Creativity in decision making is vital for effective choices. Considering all of the possible alternatives will help you make firmer decisions.
Step 4: evaluate the alternatives
You must evaluate the alternatives taking into account the current economic conditions of your business. Be careful that your goals do not trigger tax risks this can jeopardize the financial health of your business.
You will likely have to prioritize one financial strategy at a time and you will often have to postpone certain projects. This choice is called a compromise, because it is related to the decision conflict. It is characterized by an economic action which concentrates on one activity while renouncing another.
Step 5: Create and implement a financial action plan
At this stage of the financial planning process, you develop an action plan. It requires choosing ways to achieve your goals. When you reach your immediate or short-term goals, the next priorities will be targeted. To implement your financial action plan, you will need the help of a business consultant.
Step 6: Review and revise your plan
Financial planning is a dynamic process that doesn’t end when you take a specific action. You need to regularly evaluate your financial decisions.
When company events affect your financial needs, this financial planning process will allow you to adapt to those changes. Periodically reviewing this decision-making process will help you make priority adjustments to align your financial goals and activities with your current business situation.
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