The importance of financial planning in reducing risks and achieving goals
In our current time, financial challenges and economic changes have clearly increased, and therefore companies have turned to financial planning in order to achieve market stability, accomplish objectives, and avoid any risks they may face. During this article, we will present the importance of financial planning and the most important tools that can be utilized.
Concept of Financial Planning
Financial planning is a set of precise processes that companies undertake to achieve their objectives and stability in the business market. It includes evaluating the financial position, determining financial expenses and revenues, and analyzing the economic situation through which the accountant establishes successful strategies that work to reach company objectives steadily without any risks and save for other successful investments.
Reasons for Resorting to Financial Planning
There are several reasons for resorting to financial planning that companies should be aware of, including:
If the company owner wishes to invest in many other projects, he must establish short and long-term financial plans to determine priorities and expenses he may need and allocate part of them to new projects or investments.
If the company owner wants to avoid financial randomness, he can create precise and organized financial planning that helps him achieve many future objectives he has set for the company.
Importance of Financial Planning
Financial planning is considered one of the most important matters that companies must follow and pay attention to the factors that affect it positively or negatively. The importance of financial planning lies in the following points:
Financial planning helps balance funds entering and leaving the company, increasing its stability in the business market.
Providing reserve financial returns that can be invested in many other successful projects.
Financial planning ensures avoiding any sudden financial problem that may directly affect the company's stability and growth.
It provides many appropriate strategies for changing trends related to the business market.
It grants small and medium companies the ability to withstand the market and be targeted by customers by making some appropriate decisions according to company and market trends.
Financial Planning Tools
Financial planning tools are considered important means that many companies resort to in order to achieve many objectives that companies have determined, whether short, medium, or long-term. These tools are determined according to the objectives that financial planning desires to achieve, although there is a group of fixed tools, including:
Risk mitigation tools that help achieve financial stability by avoiding expected future financial risks such as life insurance.
Financial estimation tools that help understand the volumes of expenses and revenues and future financial expectations according to company productivity, such as monthly and annual estimated financial budgets.
Stages of Financial Planning
Financial planning goes through many important stages that help companies achieve desired objectives correctly and continue and stabilize in the business market. The most important of these stages include:
Financial Position Assessment: Financial position assessment is considered the basic stage that company owners can begin with. External procedures that may be a financial obstacle must be determined, such as loans, and understanding the company's external and internal expenses, in addition to determining the financial rights of each investor.
Risk Identification: The company must predict risks that the company may face during the first months that directly affect the financial plan. Understanding them may help establish financial planning suitable for the company.
Determining Future Financial Objectives: Company financial objectives must be given attention so that objectives are determined, whether short, medium, or long-term, that can be achieved steadily and quickly, and understanding company priorities that must be adhered to or that can be abandoned.
Selecting the Appropriate Strategy to Achieve Objectives: This is considered one of the most important stages of financial planning. Establishing an appropriate financial strategy for the company and determining a time frame to implement it and achieve profits from it is considered a stability point for companies, especially small and medium ones.
Implementing the Financial Plan: At this stage, companies may utilize some modern tools and programs that help implement the objectives they have determined and assist in modifying them according to the changing market.
Economic Factors Affecting Financial Planning Decisions
There are many economic factors that may affect some financial planning decisions that some companies may make, including:
Market Trends: Market trends that change continuously must be reviewed and the products or services the market is heading toward and their costs must be understood. The level of increase or decrease in the securities market, which has a direct impact on the economy, must also be monitored.
Interest Rates: Attention must be paid when central banks attempt to raise interest rates for deposit and lending returns because this may lead to increased inflation, and accordingly, the company's financial plans must be readjusted.
Inflation Rates: Changes occurring in the basket of goods and services provided to individuals, especially price increases and increased inflation rates, may affect the financial planning of some companies. Therefore, these rates must be monitored through consumer price indices.
Exchange Rates: This is one of the factors that directly affects financial planning in case the company's commercial activity deals with foreign currencies. Therefore, it must monitor exchange rates to determine revenues according to the company's situation.
