Financial Planning and Analysis: A Brief Overview
Financial Planning and Analysis: A Brief Overview
Financial planning and analysis involve budgeting, analysis, and forecasting of the financial data. This can help companies support their strategic business decisions and align to their financial goals. It also helps an investor determine whether a company is profitable and stable enough for investment.
Here’s our basic overview of financial planning and analysis.
Types of financial analysis
- Proactive analysis: If a business wants a competitive edge, it should stay ahead of the curve. Thus, professionals in financial planning and analysis actively optimize business decisions by discovering problems and finding solutions.
- Strategic analysis: When a business is considering a new product launch or a merger/acquisition, it’s looking to mitigate as much risk as possible. This is done by performing financial analysis.
- Ad hoc reactive analysis: Business environments are ever-changing and very dynamic. Thus, in response to microeconomic/macroeconomic shifts, a financial planning and analysis expert may be asked to perform ad hoc reports.
- Actual versus budget: This is carried out by reporting the variance between actual and budget. The frequency of this is usually high and is typically done on a month-to-month basis.
-
Activities of financial planning and analysis
- Analysis: This is done after the preparation of budgets and the occurrence of actuals. To determine variances, financial planning and analysis experts should have a good grip on analysis. This helps people identify how accurate planning is from reality. Then, improvements for the future can be made by adjusting assumptions and models.
- Reporting: By managing to communicate to decision-makers and higher-ups within the company, the financial planning and analysis experts can turn the forecasts and budgets into usable information. These individuals prepare reports like budgets, forecasts, operation review reports, short-term cash flow analysis, etc. There’s no ethical decision-making without accurate reporting, so the reporting step will heavily rely on proper methodology and clean data.
- Rolling forecasts: These forecasts are set for periods, for example, 12 months. With time, they continue to reevaluate. This means the forecast is updated regularly by taking current data into consideration. To make decisions as close as possible to real-time, rolling forecasts try to deal with the shortcomings of static estimates and determine what’s happening.
- Forecasting: A forecast estimates the financial outcomes of the future by examining historical data. With forecasts, managerial teams can make more informed decisions to accomplish the desired results. Plus, businesses recognize how they can allocate budgets. Both short and long-term forecasting can help businesses make important decisions.
- Budgeting: In essence, budgets are expectations that highlight what a business hopes to accomplish in a specific timeframe. Generally, they include expected debt reduction, expected cash flow, and expense and revenue estimates. When the period ends, an assessment of variances is carried out by comparing the budgets to actuals. While budgets are usually made for the fiscal year, some companies choose to make monthly and quarterly budgets.
Hire Adept Business Plans’ professional business plan writer for your financial projections
If you’re looking for projected financial statements in the form of a financial plan, turn to Adept Business Plans’ business plan writer in Canada. Let’s talk more to find out about your business plan writing needs.
