A financial plan is a comprehensible evaluation of an individuals current pay and future financial state by using current known variables to predict future income,asset values and withdrawal plans.financial planning can also be called budgeting.
By this we mean that financial planning has to do with using your present income to predict and plan your future expenses or project,it is the process of framing financial policies in relation to procurement, investment and administration of fund enterprise.
Finacial planning is a step by step approach to meet up one’s life goals, it’s saves as a roadmap or pathway to achieving essential goals and life necessities, it’s helps you to be in control of your income, expenses and investment as well as management of finance.
Analysis for financial planning:
Financial planning is the process of budgeting, evaluating, predicting and planning the expected economic out come of a business to achieve it’s financial goals.
financial planning assist in wealth creation, management and business growth.financial planning analysis should be able to include business financial goals,risk tolerance,cash flow, savings,debt, insurance and other elements of your financial life.
What are the advantages of financial planning:
1)it’s helps in preparation for emergency:To create an emergency fund is a critical aspect of financial planning.Emergency fund should be equivalent to 7_8month of your salary so that in situations like loss of job, health crisis or family emergency,the emergency fund can help to fund the expenses on time without running to other family members or friends.
2) Improve standard of living:A good financial plan can help you maintain a high standard of living without compromising your comfort. While still achieving your goals and and paying necessary bills without stress.
3) Increase savings: Financial plan helps you save your money efficiently,in as much as one can still save without a financial plan but creating this plan gives you insight into your income and expenses.its helps you cut down uneccessary expenses and increased your savings.
Importance of financial planning:
policies, procedures, programmes and budgets regarding the financial activities of a concern. This ensures effective and adequate financial and investment policies. The importance can be outlined as-
- Adequate funds have to be ensured.
- Financial Planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained.
- Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial planning.
- Financial Planning helps in making growth and expansion programmes which helps in long-run survival of the company.
- Financial Planning reduces uncertainties with regards to changing market trends which can be faced easily through enough funds.
- Financial Planning helps in reducing the uncertainties which can be a hindrance to growth of the company. This helps in ensuring stability an d profitability in concern.
What are the components of a successful finàncial plan:
In all businesses, weather you are just starting or building an expansion plan for an existing business,it’s component should include the following:
- Income statement
- cash flow statement
- balance sheet
This is a financial statement that goes by a few different names such as profit and loss statement, income statement,P&L.It is essentially an explanation of how your business made profit or incurred losses over a certain period of time.
it is a statement that list all your revenue streams and all your expenses for three months and above as well as the list of the total amount of net profit or loss at the end.Different format for income statement depends on the type of business you are into and the structure of the business.
What should be included in your income statement:
✓ your sales ( also call Revenue)
✓your cost of sales
✓ your gross margin
The above three component of income statement is the major model in business that can generate income.you will also list your operating expenses which are the expenses that is not directly associated with making sales.they fluctuate depending on the strength or weakness of your revenue in a given month that is rent, utilities and insurance.
Cash flow like the income statement is very important.Businesses runs on cash,no two ways about it.A cash flow statement is an explanation of how much your business brought in, how much cash it paid out and what is the ending cash balance per month.
Cash flow statement helps you understand the difference between what your profit and loss statement report as income (profit) and your actual cash position.
Balance sheet is a snapshot of your business financial position at a particular time, how much cash is in the bank? How much debtors? how much do you owe your suppliers? All this are to be included in your balance sheet.
Thing s to include in the balance sheet:
✓Assets:money in the bank inventory
✓Liabilities: your account payable, credit card balances and loan repayment.
✓Equity: for most small scale businesses this is just the owners equity,it’s could include retained earnings,stock preceeds and investors shares etc.it is a balanced sheet because it is an equation that needs to be balanced.
In summary, learning how to make financial plan that is customized to your goals can help you attain those goals without difficulties. keep in mind that this is your journey and no one else’s.therefore, having a financial plan for your goals and business is important and planning for the life you desire ahead of time is 100% worth it.With finàncial planning you can always boost of finàncial freedom.