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Notes On Lesson in Business Finance

Notes on Lesson in Business Finance G12 Q4

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germaineastley
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5 views

Notes On Lesson in Business Finance

Notes on Lesson in Business Finance G12 Q4

Uploaded by

germaineastley
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Notes on Lesson in Business Finance

The Importance of Financial Planning for Business

It helps to achieve the financial goals of a business

One of the main importance of financial planning is that it helps organizations to achieve their goals. It
identifies and prioritizes the financial goals of your business and enhances decision-making to achieve
the established goals. In the process of creating the financial plan, you must tailor your plan with your
business’s financial goals. The goals are set based on the purpose of the business and the financial plan
serves as a roadmap for the attainment of these goals. However, when setting goals for your business,
ensure that you set SMART goals. Therefore, a financial plan enhances the financial success of
organizations.

It provides clarification

Another importance of financial planning for business is that it provides clarification of the financial
goals and affairs of the business. However, a regular review of your business’s financial plan provides
information about whether you are on the right track to achieve the goals. It helps to know where you
are and the necessary actions to take to reach your goals. It also accommodates necessary modifications
as a result of changes of circumstance.

It enhances commitment and motivation

The financial plan enhances the commitment and motivation of employees or management of your
company to achieve the organizational corporate goals and objectives. This is because having a plan
reduces uncertainty about financial resources by providing clarity on the goals to be achieved. Knowing
what to achieve and how to achieve them will enhance the commitment and motivation of your
employees or management toward the attainment.

It enhances informed and better decision making

A financial plan helps management to make informed and better decisions by clearly identifying your
business’s goals and the actions to attain such goals. It enhances the confidence of the management to
make better choices.
It enhances effective and efficient management of cash flow

Another importance of financial planning for business is that it helps management to effectively and
efficiently manage cash inflows and outflows. It will help your business to plan your expenditure based
on the expected cash inflows. It will help you to envisage the shortage or surplus of cash in your
business and plan the necessary actions.

It serves as means of performance measurement

Financial planning also helps to evaluate performance by comparing the financial standards or plans
with the actual outcome. You must evaluate the outcome of your plan at every stage of your planning to
measure the company’s progress in achieving the established goals. This will help your business to take
corrective actions when necessary.

It enhances financial performance

Another importance of financial planning is that it improves the financial performance or outcome of
the business by providing for financial uncertainties and emergencies. It helps your business to balance
its short-term and long-term goals with its respective needs.

Information of Financial Planning

The information to include in the financial plan should be for at least three years up to five years. The
sections may include any of the following:

Sales Budget

This is the expected sales of the company. It usually includes the expected sales units, prices, and total
sales of the company’s products or services.

Expenses Budget
The cost is an important part of your business’s financial plan. This section states the expected expenses
to incur by the business during the budget period. This cost can be separated into fixed and variable
expenses.

Budgeted income statement

This section will state the expected profit or loss of the organization for the budget period. This shows
the expected financial performance of your business for the budget period.

Budgeted statement of financial position (Balance sheet)

This section should comprise the assets, liabilities, and equity of your business. This section may include
startup costs and assets of your new business.

Break-even analysis

This section involves the determination of the break-even point of your business for the budget period.
It includes the determination of break-even points in units and value.

Conclusion

Understand the importance of financial planning for business will help to plan properly for your
business. However, you can write the plan by yourself or hire a qualified professional to assist you in
creating your plan. The financial planner will highlight the current financial situation and the goals of
your business to develop the roadmap plan to achieve the established goals. The financial planner will
help you to determine the best combination of investments and assets to achieve your business’s goals.

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