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Financial Planning: You Cannot Plan Looking Back

Introduction

I support the statement “you cannot plan to look back”. When one plans for a business or self after retirement, it is all aimed to look forward without ever looking back. The focus is on advancement and preparation for future encounters, especially in the dynamic business world. Economics and finance are commonly treated as different disciplines, while in practical aspects, they are not. They are highly interrelated since they aim to understand the business world and better investment management. The only apparent difference is that economics focuses on the general questions about human behavior and the allocation of real resources. Conversely, finance is founded on the principles of money management tools. However, both analyze how companies and investors assess risk and potential returns. Economics used to be largely speculative and theoretical; on the other hand, finance was practical and involved extensive quantitative analysis (Sastry, 2021). In recent decades, economics has bridged the statistical gap that existed before, thereby diminishing the boundaries of the discourses. Both remain essential to the progress of the world economy and are applied in areas such as financial markets, governments, and institutions.

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The fundamental purpose of a forward financial plan is to ensure the growth of the company. As such, the firm should design well-researched designs and help achieve the primary goal of advancement. Some of them include the identification goals, which are aligned to the values projected by the management. Besides, it improves the motivation to achieve more significant objectives and grow both in production capacity and market share. Additionally, it provides a basis for effective and appropriate decision-making (Sastry, 2021). In the event of any unexpected situation, the management is only required to check the plan for guidance on the right course of action. Moreover, it has additional health benefits due to mental stability while working with a familiar outline. The financial plan is essential to any business because it guides the course of the company as it progresses.

Reasons Why One Cannot Plan Looking Back

Financial planning is highly essential and follows a particular chronology that does not allow looking back. Any business that aims to thrive and grow both in size and market share requires massive investment in outline design. It involves setting goals and spreading them over varied timelines as desired by the management. It comprises assessing the plans, resources, required team and resources, and the expected total budget. Additional elements involve risk study to generate counter solutions before any eventuality (Kembauw et al., 2020). It is apparent that one cannot prepare adequately for any mishap that will occur, or things may not work as per the anticipated outcome. However, it is crucial to carefully design strategies that will enable the business to survive the market demands.

One of the most apparent features associated with a forward perspective is the need for designing company goals. There are set objectives that the firm desires to fulfill at the end of a particular phase in any plan. The stages of expected outcomes can be yearly, quarterly, or prolonged periods such as a decade or more. Generally, it helps guide the functions and operations within the firm towards the typical result as agreed upon at the onset of the business. For most firms, the startups are the building periods towards developing the brand and extending market coverage. However, it is crucial to realize that goals set at the beginning should be reasonable and achievable coupled with appropriate infrastructure (Snider & Davies, 2018). For instance, the company can start with a two-year plan with relevant checkpoints to assess the progress. The key performance indicators (KPIs) and sales targets should also be moderate.

Moreover, planning results in sensible cash management and budget allocation during the implementation. It is easier to manage a firm when there is a clear outline of the expected cash flow. The amount of money getting in and out is closely monitored. When the firm is just starting, the general ideology states that there will be more spending than the amount made. It also helps in easy periodic evaluation to keep a viable level of expense. In cases of controlling how the company utilizes funds, one learns to identify the possible challenges in receiving or using money. Hence, it enlightens on the most effective ways that ensure accurate and efficient spending management.

Once one realizes how much funding they are likely to receive, it is easier to discern the spending options accurately. Some of the sources of money include investments from company shares or sales income. The firm can generate its overall budget, which is spread across definite durations and in different departments. Essentially, it is more efficient to manage team budgets instead of the system as a whole. Additionally, there is a remarkable reduction in the costs of production by sporting savings in advance. The savings can follow the ideology of theoretical models such as the life cycle model of saving (Mishkin, 2014, p. 464). For growing businesses, planning is helpful in measuring the growth rate by analyzing the cash flows and projections. The management is thus informed of the areas where they incur unnecessarily inflated costs and consequently avoid them.

Other significant reasons for a forward movement through planning are mitigating risk, managing crisis, and ensuring smooth fundraising. The finance team in the organization helps the company navigate through risks from economic crises to fraud, especially avoidable ones. The critical considerations include making room for given insurance covers and allocating resources to cater to unexpected outcomes and losses resulting from risky inefficiencies (Mishkin, 2014, p. 197). This thereby creates build-up plans which are applicable during crises. One such scenario is the coronavirus pandemic which has lasted over a year (Barua, 2020). It has disrupted business significantly unexpectedly; consequently, companies are readjusting their financial plans to incorporate it. The effects are still largely unknown, and there is no clear indication of the end to the epidemic. Therefore, firms are required to improvise strategies that will hold for the whole duration.

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How to Plan Without Looking Back

The considerations for setting a sound financial plan require careful analysis before approving them. The primary measures to be met are the economic variables that will influence the overall business plan. The next task includes measuring success and regularly revising the set objectives. The most prominent element is establishing clarity within the finances to understand better the needs and appropriate responses to achieve security. A firm financial outline is highly dependent on personalizing the firm’s goals in its current market. The decisions also require to be remarkably informed based on extensive research (Sastry, 2021). The management must visualize the goals since this is a powerful tool to broaden the scope of the project and its shortcomings. It provides the momentum needed to trigger creativity and critical analysis of the desired goals. The aims should be aligned to the company’s values and management because of the inspiration value drawn from morals.

Other considerations include those that are complementary to the forward business plan, such as the budget. The investment decision is essential since it is the basis of financial functions. Intelligent allocation of funds, especially to long-term assets, to boost future yield in profits. It is also commonly referred to as capital budgeting in the business world (Posnaya et al., 2018). There are two critical aspects of investment decision, new project evaluation in terms of profit margins and comparison of the cut-off rates in contrast to the prevailing venture. The uncertainty of the future is equally supposed to be covered when calculating the expected return as a risk factor. The decisions do not stop at mere allocation, and it extends to the utilization of the funds generated from the sale of the assets. For instance, the management can opt for the decomposition of depreciated assets that have since ceased adding value to the company. The revenue from such can be used to purchase or improve beneficial assets or boost the production line.

Conclusion

Forward economic-financial planning in any organization is mandatory and is a tool that ensures that the form progresses and is not drawn back. However, it is equally imperative to note that the financial section is the most crucial because it holds the resources. Getting investors, loans from monetary institutions, and the overall budgeting is highly dependent on the budget. The design of the outline, which is to be followed by the company, is one that requires extensive research before the final formulation of the implementation course. The plan is essential because it guides the operation of the firm and its expansion in the market. It is a source of inspiration and motivation since it spells out the value of the company, which is aligned with the objectives. Thus, fulfilling the aims is achievable because of familiarity with the expected outcomes apart from providing a growth map. Consequently, it is viable to conclude that a forward financial plan is a prerequisite to a company’s progress.

References

Barua, S. (2020). Understanding Coronanomics: The economic implications of the coronavirus (COVID-19) pandemic.

Kembauw, E., Munawar, A., Purwanto, M. R., Budiasih, Y., & Utami, Y. (2020). Strategies of Financial Management Quality Control in Business. TEST Engineering & Management, 82, 16256-16266.

Mishkin, F. S. (2014). The economics of money, banking and financial markets (7th ed.). Prentice-Hall.

Posnaya, E. A., Kaznova, M. I., Shapiro, I. E., & Vorobyova, I. G. (2018). Theory and practice of capital estimation methods: An application in bank management.

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Sastry, V. V. L. N. (2021). Financial Planning and Control. Bright & Young Publishers.

Snider, J. H., & Davies, K. J. (2018). Success strategies for small financial planning firms. International Journal of Applied Management and Technology, 17(1), 4.

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