Over50s Have Nice Gardens But Poor Financial Planning

Over50s Have Nice Gardens But Poor Financial Planning

The planning as a concept, I have always defined simply:

 

  • Planning is projecting into the future.

 

  • It is to try to determine in advance what we expect to happen in the future, and in which each of the “thought” events should be given in compliance with a predetermined process.

 

In this regard, Financial Planning seeks to envision the economic events that are expected within the framework of the company’s commercial activities for a predetermined period.

 

The foundation of financial planning should be supported in budgets.

 

We will try to project the income and expenses of the company for a given period will for over 50s, in order to anticipate the determination of the needs of money, for that same period.

 

On the other hand, financial planning is aimed at ensuring that economic resources are used appropriately.

 

The sound management of every company is guided by a constant concern for the conditions of employment of its capital and its performance.

 

The notion of ” Financial Plan ” could range from the simple forecast of the treasury (a more or less long-term

) to the full financing plan that would cover several years.

The financial plan is usually derived from the concrete plans that determine the objectives of the purchasing activity and the means to achieve them (sales plans, production, investments, provisions on expenses and operating income).

 

The Cash Budget is the most common and most used. It is designed for short or long periods, but generally not longer than one year. It attempts to quantify future actions with respect to the behavior of money (Income and Expenditure).

 

Processes:

 

It is common and recommended a sequence of administrative and accounting processes to try to establish serious and reliable results:

 

  1. Projection of sales and cash flow behavior with respect to how they are carried out: Counts and/or credits.

 

  1. Projection of the necessary purchases to meet the demand of our customers, to reach the best way to meet their needs. We must properly record the commitments acquired with the payment thereof, in the case of cash and/or credit purchases.

 

  1. Establish the necessary expenditures for operational and non-operational expenses, necessary to carry out our business activity and the manner and periodicity of how we are going to deal with these obligations economically.

 

  1. Group all the information in a general summary table, showing us the month-to-month behavior of income, expenses and costs and expenses necessary for the normal operation of the company, with a final vision of the money that we could have. to start each monthly period.

 

  1. With all the information described above, related to sales, purchases, costs, and expenses and with the summary of cash behavior, we can perfectly process a financial projection that allows us to glimpse what would happen in a given period in the future, for example in six months or a year.

 

  1. The analysis of the “monthly balances” of the cash flow, as it is due to a projection in time, will serve as a guide to determine the cash needs month by month and the actions that would be taken to supply us with the necessary money, resorting to bank loans and/or permanent or temporary extraordinary contributions by the partners.

 

Also, it will be important to make projections about:

 

  1. The financial statements that will result from the planned actions.

 

  1. Plan the Final Inventory, adding to the Initial Inventories the Purchases and deducting the Cost of the Sold Goods.

 

  1. Plan the Accounts Receivable to customers adding the Sales to Credit and deducting the Collections.

 

  1. Plan Accounts Payable to suppliers, adding to the initial balance the Purchases and deducting the projected payments.

 

  1. Project each of the balance sheet accounts.

 

In this sense, we can prepare fixed budgets, in which the activity is given as fixed and variable budgets in which variations of the activity of the company have been foreseen.

 

Use of forecasts:

 

The Financial Forecasts have a double use;

 

  1. They allow analyzing the planned actions and,

 

  1. Control the results as they are obtained, comparing them with the Budget, which is taken as the standard or basis for this comparison.

 

Needs and resources:

 

The first activity should consist in the establishment of the inventory of the needs for a given balance of activity in a given period.

 

Therefore, it is a matter of doing, in the first place, a complete inventory of the needs, so that it is as true as possible from these two points of view:

 

A bad appreciation of the degree of availability or non-availability of funds will be reflected as dangerous at the time of execution of the plans, as could be the case of some loans considered as realizable and that may turn out not to be in the short or medium term.

 

A poor classification of needs could lead to decisions with false bases.

 

Importance of the financial plan:

 

  1. The Financial plan is a must for every company, small or large; Very often, due to a “treasury error”, profitable companies have failed or have seen their personality transformed.

 

  1. Make a financial plan involves foreseeing beyond a few months and make choices. The planned objectives and the decisive elections constitute, finally, the policy of the Company.

 

  1. Following a financial plan involves using your capital in the most profitable way and using those of others (bankers and other lenders) not only in a profitable way but also economically, that is, adjusting as much as possible the uses to the needs.

 

  1. Finally, a financial plan must include the “securities” necessary to deal with the contingencies inherent to industrial or commercial activity.

 

Advantages of financial budgets:

 

  1. Each of the areas of the company will be subject to a budget operating standard.

 

  1. Since all the plans are included in the budgets, the losses produced by involuntarily duplicating some work are avoided.

 

  1. It allows making the changes or adjustments that are considered convenient in the plans of the company in the passage of the time contemplated in the validity of the budgets, to put them in tune with the financial possibilities, before it is too late to make the modifications necessary.

 

  1. When the company needs a bank loan, the budgets can be very useful for the bank to examine the progress of the business, even though many times it does not need to appeal to this procedure.

 

  1. Reckless expansions will be avoided through the financial budget.

 

  1. It allows to control and control properly the expenses

 

  1. It is the only procedure to calculate with the necessary advance the cash that will be needed to continue with the activities of the company.
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