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Managing your finances prudently, whether you are an organization or an individual, is essential in today’s world. This has always been a part of the human world. In the old days, kings and emperors used to employ specialists in arithmetic and calculation to keep track of their finances. In our modern world, everyone needs to manage their finances as without doing so bankruptcy or ruination is a real possibility. Financial planning and analysis is done according to the nature of the client. If the client is any organization then the mode of financial management is different than what would be in the case of individuals. If a business performs financial planning and analysis, then it would need to follow these steps:-
- Assessment of current financial position
- Identification of goals and objectives
- Developing strategies for the management of finances so that they are in line with the goals to be achieved.
- financial management assignment
Business finance management includes many steps within the three general ones that have been mentioned above:-
Basic Functions: Before financial planning can be undertaken, the planners need to particularly assess the case of the particular given organization. The nature of the business and the activities undertaken therein will impact the finances. For example if the enterprise has a long gestation period between the production of goods and the realization of profits then, the financial planning will have to account for the gap. Subsequently, the planning will need to be such that all outstanding debts and expenses should be covered by the liquid assets available to the company. On the other hand, a small scale enterprise or a company where the gestation period is small, can take certain risks depending upon their present financial position. All planning ought to be done according to the long term goals and objectives of the organization.
Efficiency of Operations: A company’s financial situation is heavily dependent on the efficiency of their operations. If the operations process and the allocation of funds to at done efficiently, then the financial situation would be ideal for them. Conversely, if excess finds are being allocated to a business operation, then it is an obvious waste which can be avoided by prudent financial planning. A financial planner will need to figure out exactly how much resource allocation would be sufficient to run the operations effectively and efficiently.
Measuring Assets and Liabilities: A company’s financial position is determined by identifying the balance of its assets and liabilities, whether that is in positive or negative. This provides us with a by and large realistic picture of the long term financial position of the company. Taking this a basis for further long term and short term planning, the financial planner can determine the course of action that should be taken by the company in order to achieve its financial goals. Assets are usually divided into fixed assets and liquid assets. Liabilities are divided into long term and short term liabilities. Assessment of long term and short term assets and liabilities will help the financial planner in projecting the financial future of the company.
Income and Expenses: Measurement of the balance between income and expenditure helps financial planners in understanding the short term financial position of the company. This opens up a window for the planner to assess whether the short term objectives of the company are pragmatically established. In other words, the current financial position of the company becomes visible and on the basis of those, the financial planner can project how close the company can get to realizing its objectives. Income and expenses are also an insight into the cash flow position of the company. Based on this the financial planner can decide whether to engage in any potential expansion drives or to make investments or to enter into contracts with client or other companies.
Determining Need for Funding : As the financial planner will have an in-depth insight into the financial position of the company, they would be able to identify if the company is in the need of funding. The long term assets and liabilities of the company will enable them to project the probable long term financial position of the company. Similarly, short term issues like incomes and expenses will help the planner understand the current financial position in terms of present organizational operability. Cumulatively, these two aspects of financial situation will enable the financial planner to identify potential funding requirements, the means of procurement of funds, whether they are internal or external and the impact on the financial position of the company as a result of the fund allocation.
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