What is Financial Planning?

//What is Financial Planning?
What is Financial Planning? 2017-10-09T05:32:51+00:00

Definition: Financial planning, also called budgeting, is the process of setting performance goals and organizing systems to achieve these goals in the future. In other words, planning is the process of developing business strategies and visions for the future. It’s big picture stuff.

What Does Financial Planning Mean?

Management and the board of directors usually meet several times a year to discuss their ideas for the future and broadly develop goals of where they want to see the company go in the years to come. They typically divide the goals into three time frames: long-term, medium-term, and short-term.

Example

Long-term planning focuses on goals that will be achieved in the next five to ten years. These goals could be anything from factory expansions to new product developments and innovations. Long-term planning usually focuses on unspecific, broad goals that can be accomplished in many different ways.

Medium-term planning focuses on goals that can be accomplished in three to five years. These goals are more focused than long-term goals and usually are developed with tactical strategies to make sure they are accomplished in the time frame.

Short-term planning focuses on goals that can be accomplished in the next one to two years. These goals are refined and have usually been in process for a number of years already. They are reaching the final stages of being completed and realized. Short-term plans generally focus on operational aspects of the company instead of broad financial and forward thinking ideas. Since these are goals that are supposed to be achieved in the next year or two, they mainly focus on ways to make them happen. Short-term planning is also referred to as budgeting.

Planning is one of the main purposes of managerial accounting. Managerial accountants are charged with setting operational goals and controlling operations to accomplish these goals.