Finance planning presupposes defining the company’s goals in the money equivalent by means of planning and tracking the execution of the income and expense plans based on the existing financial resources and considering the internal conditions of the company’s activity. Financial planning has nothing to do with accounting or drawing up the statement of revenues and expenditures, cash flow, since it’s the reflection of the existing company’s activity.
Financial planning is often compared to financial forecasting. In fact, these two processes are in a sequential dependence: financial forecasting means evaluating various alternatives of the company’s financial management and, consequently, it precedes financial planning. By means of financial planning the targeted forecasts are specified, the definite ways of their realization, relative tasks, factors and the order of their realization are established.
Main tasks solved by financial planning:
- defining the ways of effective capital investment, and evaluating the levels of their rational usage;
- establishing rational financial relations with investors, government, banks, and other contractors;
- tracking the financial state, solvency, and creditworthiness of the company.
Financial planning methods:
- he economic and mathematical modelling method is applied if it’s necessary to establish the quantitative relation between financial indicators and main factors which define them.
- the normative method deals with finance planning based on the certain norms and standards: external (taxes, investments, amortization deductions) and internal (wages fund, procurement activities, etc.)
- the balance method is based on the calculation of receipt of expected funds and expenses on the main articles of the balance sheet.
Moreover, there are some other methods: method of coefficients, method of extrapolation, method of economic analysis, etc. All these methods are equally effective and are applied depending on the object in view, type of activity and other parameters.
Effective application of financial planning in the process of the company’s control allows turning the strategy into the definite financial results and evaluating projects in the actual market environment. Moreover, it’s one of the most important factors effecting the decision on investments.
Financial planning automation by implementing special software solutions lets influence the company’s performance in a positive way. The company will be able not only to simplify the employees’ efforts but also will significantly increase its profit, which is the main task of any business. First of all, financial planning automation is beneficial for the companies that are only making their first steps in business. It will give them a competitive advantage over other competitors.
Financial planning automation functions:
- making budgets for certain periods;
- tracking the execution of tasks and financial plans;
- planning and managing the debit/ working credit of the company;
- managing financial payments;
- financial analysis of the company.
