Definition of financial planning

Definition of financial planning

Financial planning is planning that is applied for a long-term period. In order to achieve financial profits based on obtaining returns greater than the value of assets, with an increase in the growth of their market share, financial planning is defined as the activity that contributes to making decisions related to the way individuals manage their financial rights, and financial planning includes a group of aspects, the most important of which are Preparing the financial budget, planning taxes, saving money, etc. Another definition of financial planning is preparing a program that helps manage capital and financial affairs. By linking it to preparing a financial budget.

Financial planning goals

Financial planning seeks to achieve two goals:

• Money saving guarantee: It is the primary and first goal of financial planning. It is important that there is sufficient money in the company; In order to carry out many activities and tasks, such as obtaining long-term assets, covering daily expenses, and ensuring timely financial financing.
• Not using or wasting company resources unnecessarily: It is the second goal of financial planning, which is linked to excess financing of resources, which is similar to a lack or insufficient amount of money. In the event of a financial surplus, it is important to apply good planning to invest these financial resources. By utilizing it in the best possible ways, and avoiding wasting it, which may lead to a major financial loss for the company, financial planning for establishments is applied over a short or long period of time. Long-term financial planning focuses on capital spending, and short-term financial plans are called budgets, and they contain a special work plan that is prepared for a fiscal year or less.

The importance of financial planning

Correct financial planning is considered one of the means to the success of commercial projects, and its importance includes the following points:

• Conservation of funds: It is financial planning's assessment of appropriate needs while dealing with money, which contributes to avoiding its waste and loss in cases of capitalist excess.
• Help in choosing the appropriate capital structure: Participating in arranging funds from diverse sources, and used in short-term, medium-term, and long-term time periods. Financial planning is one of the necessary things to benefit from sources of money at the appropriate times. Long-term funds are obtained from bondholders and shareholders, medium-term funds are collected from financial institutions, and short-term funds are private funds in commercial banks.
• Contribution to financing projects: It is the development of financial planning for a financing plan that helps determine how to use private funds in projects, and is based on a comparison between different investment proposals.
• Participation in executive activities: It is the role of financial planning in achieving the success or failure of enterprise functions, such as distribution and production during business implementation. By relying on making sound financial decisions that ensure the promotion of appropriate financing and operation.
• Strengthening financial control: It is to provide financial planning with a basic basis that contributes to examining financial activities. In order to compare actual and estimated revenues, with estimated and actual costs.
• Help to avoid business crises: It is a means of financial planning that provides assistance to enterprises. In order to overcome or avoid crises and surprises that negatively affect the work environment.
• Linking the present and the future: It is to provide a follow-up of the current requirements for the facility’s funds, with the requirements expected in the future. By setting a set of expectations and plans that seek to support the company’s growth and the development of its sales.

Stages of financial planning

Financial planning depends on applying a set of stages:

• Defining relationships between clients and planners: It is the first stage of financial planning, and depends on the role of the financial planner in documenting all the services that will be provided to clients, which contributes to strengthening the agreement between both the financial planner and the client on how to make decisions.
• Collect private data on customers: It is the role of the financial planner to obtain appropriate and specific data for each client. This contributes to determining the financial situation of all clients, the nature of their attitude towards risk, and their personal goals.
• Evaluating clients' financial situation: It is the third stage of financial planning, and depends on analyzing private information about clients. In order to evaluate their financial situation, and determine the things that must be done to achieve the goals, this evaluation includes analyzing the client’s financial assets, obligations and expenses incurred by him, and investments or tax requirements.
• Providing financial planning recommendations or alternatives: It is to provide financial planning recommendations that contribute to addressing clients’ specific goals; By relying on their information, which contributes to providing assistance to the financial planner; So that he can review recommendations that allow the client to make the right decisions.
• Implementing recommendations for financial planning: It is the penultimate stage of financial planning, in which an agreement is made between the financial planner and the client on the method of implementing the recommendations. It is possible for the planner to train the client on these recommendations, and then coordinate their implementation process with him.
• Monitor financial planning recommendations: It is the last stage of financial planning; Through it, an agreement is made between the client and the financial planner to implement control related to the implementation of goals, whether through the client or the financial planner.

Factors affecting financial planning

There are a number of factors that affect financial planning, the most important of which are:

• Human factors: These are factors related to individuals within establishments, and their impact depends on the application of a group of matters, the most important of which are:
  • Selecting a qualified workforce with competence and appropriate experience to ensure the achievement of the required goals.
  • Providing training that contributes to supporting employees’ skills and knowledge.
• Technical factors: It is the combination of financial planning and contemporary technological techniques, which leads to increasing the effectiveness of implementing activities, supporting obtaining profits and reducing the amount of costs and losses.