Understanding Financial Planning and its Importance

In the analysis, they will predict the future possible cash flows when a certain financial decision is committed to, the asset value of an investment and the withdrawal plans. This way, a company can accurately determine which financial position will be profitable and which one will result in losses. Then, it will take the appropriate decision and commit short-term and long-term resources so that it will maximize the profit and avert situations that result in a loss. Financial planning involves six stages: Determine the current financial position, set a business financial goals, analyze alternative courses of action, asses potential risks, implement strategies for action then finally evaluate and review strategies. Financial planning is very important for a business. To be sure that a business will be able to repay, then a business should have a well laid down process.

This is very important for a business it being that unforeseen activities may necessitate the allocation of supplementary budgets that may always not be readily available or, a business may need to adopt new technologies or expand. At such times, a business may not always have had prepared and it is never a guarantee that revenues raised from within would suffice to finance such activities. Businesses that do financial planning thus do not only avert losses but also attract external capital (Schoemaker, 2013). Businesses that do not plan cause themselves unforeseen problems; firstly, when a business does not plan, it will always be in debt. A business that does not plan therefore is vulnerable to many external unforeseen interruptions. It will be noted that a business operation is determined by internal and external environments for which it can never control the external environmental factors (Schoemaker & Van der, 2014).