One of the most important element of financial management is financial planning. Financial planning, like and any other of its kind. – This is, firstly, definition of the future of the enterprise and its subdivisions, secondly, designing of the desired results of the company and, thirdly, the choice of methods and means (resources) and determining of the sequence of actions to achieve the desired results.
The sequence of planning is:
Identification of purposes;
Modelling the future state of the enterprise;
Identifying ways to achieve it;
Decomposition of the given (desired) results in the goals and tasks to performers who themselves identify ways to achieve them.
Fundamentals of Financial Planning (its “starting point”) are the interests and expectations of those who gave and gives to the company the resources. Ignoring of this simple fact leads to the fact that resources eventually cease to be provided. To prevent this requires a consistent and efficient financial management and, in particular, financial planning, as an essential tool for maintaining the viability of the enterprise. In the end, the activity of any enterprise can be considered as processing of resources (material, labor, etc.).
Usually one of the objectives of financial management is considered to be the expectations of legal owners of the company (shareholders, “masters”) about future returns on their capital (and resources): in this case economic theory reasonably argues that resource owners try to invest them that way: with an acceptable level of risk, the profit per unit of embedded resources should be the greatest. In this approach, the basic guide for financial planning is the rate of return (profitability) of the enterprise, more accurately – a profitableness of investment, more precisely – the level of net profit from this capital: it is expected that this level should correspond to the level of net profitability of alternative investments and thus it should meet the expectations of shareholders.
Thus, prudent financial management in financial planning, as well as in financial analysis, necessarily presupposes the interests of all groups of owners of the Enterprise Resources – both shareholders and creditors, which include banks, suppliers and contractors, budget and extra budgetary funds, personnel, etc. It should be noted that all of the owners of the enterprise’s resources (i.e., those who shape liabilities – funding assets.) are interested in maintaining of financial stability of the company. Shareholders are interested in sufficient and sustainable net income on invested capital; banks – in a safe creditworthy borrower; trade creditors (suppliers and contractors) – in the stability and solvency (even with deferred payments), buyers and staff – again in a stable employer; budget and extra budgetary funds – in a solvent taxpayer.
Normal financial condition of the enterprise – is the condition when the interests and expectations of the owners of the company are meet best.
Defining a list of parameters, sufficiently describing the condition of the enterprise, and the quantitative values of these parameters, which can be considered as normal for this company, this is – one of the key objectives of financial management, without which, targeted financial planning and analysis become meaningless.
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