Stages of corporate financial planning

Published on 13/03/2024

Stages of corporate financial planning

Published on 13/03/2024
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Stages of corporate financial planning

Financial planning in companies is a fundamental part, regardless of their size. Being able to understand the financial situation of your company will help you develop all its processes more efficiently. However, even knowing this, it is not always easy to keep track of finances, and establishing them can be complex for some companies.

Every entrepreneur should know what corporate financial planning entails and how to carry it out in practice. This will not only establish solid financial objectives that will make business activities profitable but also contribute to the achievement of the overall objectives of the business plan.

Regardless of the activity and size of your company, all should comply with a stable and detailed financial plan. For all these reasons, we are going to explain what corporate financial planning entails, its phases, and why it is so important.

What is corporate financial planning?

Financial planning is the process by which companies become aware of their financial situation. In this process, the resources available to the organization to achieve the objectives set in the overall strategy are studied, thus increasing the profitability of its activity.

In this plan, it is important to define what the company wants to achieve and the costs this will entail. It is important that a company’s financial planning be prepared to anticipate the different scenarios and situations that the organization may experience.

We must remember that a company is not an isolated agent but coexists in an environment full of agents that influence its activity and where its actions also have an impact on the environment. Conducting a market study that allows us to anticipate the different situations in which our company may find itself is also fundamental to financial planning.

Stages of corporate financial planning

Corporate financial planning, like all processes, consists of different phases or steps that every company should follow to develop it effectively:

Analysis of the situation

It is important to analyze the financial starting point from which our company starts, considering aspects such as income, expenses, tangible and intangible assets of the company, and third-party financing available. This can also be analyzed through various accounting documents worked on by the accounting department. Here are some of them:

  • Balance Sheet
  • Profit and Loss Statement
  • Cash Flow Statements
  • Memorandum

On the other hand, it would also be advisable to analyze possible financial threats from the environment that could affect the activity of our company. As we have pointed out at the beginning of this post, organizations do not act as isolated means but are interdependent on each other in a global market, so anticipating any changes will give us a competitive advantage.

Establish objectives

The second phase of financial planning in business practice is key for it to work. It is about setting objectives and goals that guide the financial strategy that we will define next.

We must remember that objectives must be measurable, simple, and accessible; that is, although we want to be ambitious with the goals we set, they should never cease to be achievable and realistic.

On the other hand, it would be convenient to differentiate between short-, medium-, and long-term objectives. Short-term objectives in the financial field will focus on the first year of your business activity; medium-term objectives will cover between 2 and 4 years; and long-term objectives will cover more than 4 years.

Detail a financial strategy

Once the situation of the company, the resources available, and the objectives sought have been analyzed, the next step is to think about the actions to be carried out to achieve them.

In this phase, it is important to define the financial budget with which we will work and the deadlines that this budget must meet. Thus, this will vary depending on whether the needs we need to cover are short-, medium-, or long-term.

Review and implement improvements

As in any plan, it is important to periodically monitor and review the plan to identify areas for improvement or weaknesses in the strategies.

At the same time, it is not enough just to identify those aspects in which we are failing but also to implement the changes that we see fit.

Evaluate results

Following the previous point, it is not enough to periodically monitor the financial actions taken. At the end of the financial plan, marked by the established deadlines, we must make a critical assessment of the results obtained.

Being able to obtain data to compare results is essential to any financial plan. For this, you can use software that records the costs and profit margins of each project worked on in your company. Analyzing your company’s activity by projects and their financial results will allow you to draw up an optimal business plan and work on the necessary improvements.

Advantages of financial planning in business practice

Defining an integrated financial plan for your company is essential for business activity to be fruitful and profitable. Here are some of its main benefits:

  • Facilitates goal achievement: Developing a financial plan will make it easier to achieve the overall objectives of the company and, therefore, its efficiency.
  • Supports decision-making: Financial decision-making is much easier with data, objectives, and actions to support them.
  • Creates a solid budget: If we follow the phases of the financial plan, we can obtain a budget that allows us to meet the goals and expectations of the organization.
  • Controls financial movements: With a firm strategic plan, it will be difficult for the financial movements of your company to deviate from the actions set.
  • Increases investment and savings capacity: By controlling the expenses and revenues of the company, you can allocate greater efforts to savings and investment in assets according to the results obtained.
  • Reduces the level of debt of your company: By knowing all the movements and having an overview of the economic situation of your company, it is easier to monitor and identify areas for improvement.
  • Creates strategies for financial anticipation: The financial plan can also be used to create actions to anticipate possible crisis situations or profit recessions.

As we have discussed throughout this post, corporate financial planning is key to understanding the situation of our company and studying possible areas for improvement. Therefore, it is important to dedicate the necessary efforts and not deviate from the business objectives that will determine the financial needs to be covered in our financial plan.

On the other hand, it is also important to have technological solutions that help us digitalize this process and decrease its error probability. This will provide us with clearer, more real, and objective results with which to work to increase the profitability of our company.

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