Financial planning is an interesting phenomenon. It is believed that its use is traditionally associated with solving business problems, with the commercial sphere. But it's not always the case. Planning finances may well be engaged in ordinary citizens in everyday life. What nuances of financial planning deserve special attention? What tasks within the framework of the respective activities can the enterprise face?
What is financial planning?
Financial planning is the most important part of managerial activities in any commercial enterprise. It is best to develop a business in accordance with a well-developed algorithm, based on a model whose functioning depends on factors that are predictable and transparent to the firm’s management. Planning finances allows you to correlate the capabilities of the organization with the tasks set by the owners of the enterprise. This process also allows the management of the company to find the necessary sources of cash resources and effective scenarios for their involvement.
Financial planning is designed to assist enterprise management in establishing adequate proportions between the various types of resources that the company possesses. This may be, in fact, capital, or fixed assets. An enterprise engaged in financial planning correlates various key indicators (such as, for example, the magnitude of costs, volumes of output of goods, capital investments) with the current tasks of the business. This allows you to build a more sustainable business model based on rational criteria.
The ratio of planning and forecasting
In economics, a term is defined that is very close to what we are considering, namely, “forecasting”. What is its specificity? How do forecasting and financial planning relate? With regard to the two noted terms, a number of common signs can be distinguished, namely: the integrity of the object and its economic environment, the use of similar or identical methods in solving the tasks, the presence of goals that are consistent with the priorities in business development.
However, forecasting and financial planning has a number of significant differences. As for the first term, it does not imply strict adherence to identified patterns. They are usually probabilistic in nature and less detailed than those that are presented financially. Forecasting is a prospective study of the capabilities of the enterprise, planning is the development of algorithms, the implementation of which is necessary due to the current tasks that the management of the company faces.
It can also be noted that the implementation of plans may imply certain obligations of the company to external players - investors or regulators. Thus, the planning of public finances is most often associated with strict procedures for reporting entities that have access to one or another financial resource (most often, budget) to competent authorities. Prediction, in turn, cannot be the basis for appropriate control, since it uses, as we noted above, probabilistic criteria, which in practice can differ significantly from those determined by the corresponding preliminary analysis.
In the commercial sphere, forecasting often acts as an equally significant component of a business development strategy. For example, the financial planning of a trading company - as an organization that is very much dependent on the volume of revenue - is largely tied to forecast indicators relating to demand from buyers of goods. How can this be expressed? First of all, the fact that the management of the company may require subordinate structures to maximize the compliance of the results with the expected numbers, which are determined on the basis of forecasts.
Key objectives of financial planning
Financial planning involves the formation of certain tasks for the management of the company. Among those:
- the discovery of reserves that may allow to increase the company's revenue;
- increasing the efficiency of capital utilization;
determination of optimal formulas for correlation of costs and production plan;
- ensuring constructive interaction between the enterprise and partner structures - banks, contractors, customers in the aspect of financial communications.
In the process of solving the problems in question, the organization’s management carries out activities in the following main areas: capital flow, financial relations, as well as accounting activities (accounting, reporting - internal or to state regulators).
These are the main objectives of finance planning. We now examine the key principles that may underlie the corresponding activities of the enterprise.
Key planning principles
We will study the key principles on the basis of which financial planning can be carried out at the enterprise. Researchers highlight the following list:
- the use of forecasting methods;
- risk analysis ;
- coordination and control.
Let's consider their essence in more detail.
Regarding such a principle as prioritization, enterprises in most cases are faced with the fact that production and other tasks related to business development become complex. In order to solve all of them, it is often necessary to invest huge resources, including in solving those tasks that are clearly secondary in terms of business development. The management of the company should, therefore, be able to identify the main areas of activity (and concentrate the necessary resources in the relevant areas).
Another important principle on which the planning of finances in an enterprise can be based is forecasting. It can be implemented in a variety of aspects. This can be forecasting of internal production processes, the influence of external factors - both market and administrative. The key method here is the analysis of processes related to the relevant areas.
Risk analysis is an example of another significant principle in the process of solving problems that form the planning of finances. The fact is that almost any business is implemented in environments characterized by one or another potential threat. This may be, for example, currency fluctuations or unstable policies of state regulators. Foreign policy risks are also significant - this is especially noticeable in the example of Western sanctions against Russian enterprises.
Coordination and control are examples of other critical principles of financial planning. What can be said about them? Coordination is a rather complex term. It can be understood, on the one hand, as a combination of various activities in an enterprise into a single concept, on the other hand, the application of management methods common to all sectors of production, the introduction of universal principles for maintaining a corporate culture, the dissemination of knowledge among employees that contribute to understanding the key priorities of the company. Control - these are procedures that ensure that employees of the enterprise follow the algorithms that are laid down in the relevant plans.
We will study what are the methods of planning finance. There are a large number of approaches to their classification. Among Russian entrepreneurs, a fairly widespread one is based on dividing activities according to the criterion of their focus: from bottom to top (from subordinate units to management), from top to bottom, and also through the implementation of counter-initiatives of company and management employees. We will study these methods of financial planning in more detail.
Regarding planning within the framework of the “bottom-up” scheme, the relevant plans are formed by competent specialists of subordinate structures based on the results of their detailed analysis of production processes.
The advantage of this method is that the structure of the corresponding business development algorithms will be very detailed, including the smallest nuances, many of which may later turn out to be key from the point of view of solving production problems.
The second method assumes that the management of the company forms general, conceptual tasks, and transfers them to subordinate structures with the aim of further detailing and structuring in the appropriate type of financial development plan. The advantage of this method is that planning will initially take into account key strategic factors, such as the state of affairs of the company on the market (in the first scenario, specialists from local departments may have a fairly general or completely erroneous idea about it), the specifics of interaction with creditors and investors (similarly, employees of subordinate structures may not know anything about the relevant nuances).
The third scheme is characterized by the simultaneous involvement of the key principles of their first two. Thus, it identifies the key advantages of both - strategic finance planning, taking into account factors known only to management, as well as detailed business processes.
What can prevent the enterprise from always working within the framework of the third scheme, since it is so successful? This may be due, for example, to the strict observance of trade secrets in the enterprise. So, the management of the company does not always have the opportunity to bring to the attention of subordinate employees data regarding the credit load of the company or information reflecting the interaction of the company with investors. In this case, most likely, the bottom-up scenario in its pure form will be involved.
So, we examined the basic methods by which financial planning can be carried out. Market economy - a phenomenon that involves competitive relationships between players in a particular business segment. Most likely, those companies that will be able to use the most effective tools in terms of practical solutions to problems related to financial planning will most likely benefit. Let us examine what tools businesses can use in terms of the area of activity under consideration.
Among the most common and significant - economic analysis. This tool allows the company to identify patterns that characterize production processes, as well as areas of interaction between the company and external players - contractors, creditors, and customers. Economic analysis allows you to identify what reserves the company has and what can be enough for them. It can be noted that the corresponding tool is considered by many researchers as an independent method of planning finance due to its complexity and the presence of a large number of additional components.
Another common tool with which planning can be carried out in the financial system of an enterprise is rationing. Its specificity is that competent specialists working in the company calculate some planned, expected indicators, based on available data on standards (relating, for example, to the release of goods or the provision of services). Sources of relevant norms can have both an official character (that is, they can include one or another source of law - for example, federal law), as well as internal corporate law.
The next most important planning tool is optimization. The fact is that, on the basis of economic analysis and rationing, several concepts can be developed at once, involving scenarios of the distribution of finances in an enterprise. Of these, you must choose the one that reflects the state of affairs in the company most objectively, and therefore can be considered optimal. The main criterion here is the achievement by the enterprise of minimum costs and maximum income with the involvement of certain approaches. The plan that will determine the most complete compliance of the company with these priorities will be selected as the optimal one.
These are the main tools with which financial planning can be carried out. Finance is a resource that an organization can use in relation to a wide variety of types of tasks. So, the prospects for the use of capital may depend on the specific types of plans involved in the enterprise.
We study what are the types of financial planning. There are many approaches to their classification. Among Russian researchers there is a widespread pattern according to which planning and control of finances is carried out on the basis of classifying relevant activities as promising, ongoing and operational. Consider their specifics in more detail.
Long-term planning involves the development of key strategic priorities by the enterprise, which should be implemented over a significant period of time, for example, 3-5 years. In this aspect, the development of plans, as a rule, is carried out according to the “top-down” scheme, that is, information that reflects not only the internal specifics of the development of the company, but also the influence of factors forming in the external environment are included in the corresponding algorithms.
Current planning involves the development of criteria by which an enterprise should develop over shorter periods of time than when drawing up long-term plans - about 1 year. This mechanism most often involves the use of a mixed scheme for compiling the formation of the corresponding algorithms. That is, the management of the company, on the one hand, provides subordinate structures with some types of strategically significant information regarding the development of the company, on the other hand, it receives from them the details of the stages of the plan's implementation.
Operational planning involves solving the problems that confront the company in a specific period of time, or that need to be addressed in the coming months. Most often, plans are drawn up from the bottom up. In this case, management usually does not make sense to disclose to the employees the strategic nuances of business development.
It plans not only business
Planning, as we noted at the very beginning of the article, is an important component of working with finances, not only in business. Government agencies and non-profit organizations are also involved in relevant activities. Family finance planning in Russia is also in the order of things. Methods of increasing personal well-being of citizens through the use of various useful techniques and ready-made tools, for example, in the form of computer programs, are gaining popularity. Planning is a type of activity that is fully linked with the daily life of a modern person.
Is it possible to say that the methods and tools for drawing up financial plans that we have noted are equally compatible with any sphere of activity of citizens, whether it is compiling a family or personal budget? Adjusted for the presence in the business of specific processes related, for example, to the release of goods or accounting services for financial transactions in general, the key laws of the commercial sphere are also applicable to civilian activities. A person may well, for example, draw up a personal money management plan in the aspect of the strategic period, solving current and operational problems. It can involve analysis, rationing and optimization.
Of course, in the event that a citizen who does not have the proper level of qualification is engaged in relevant activities, these activities will be greatly simplified. But they will completely correspond to the specifics of the nuances of financial planning considered by us above. The personal budget, therefore, may have pronounced similarities with the corresponding plan for capital utilization in the enterprise, albeit in a simplified form.