Lesson 3.

Financial Planning Process

Business Finance
Accountancy, Business, and Management

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When you receive
money, what is the first
thing that you do? Do
you plan how to spend
it?

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Money has different
uses for different
people. For some, it is
meant to be spent. For
others, it has to be
grown.

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If you want to use
money to reach your
financial goals, a
money management
plan is necessary.

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Businesses create long-
and short-term plans to
achieve their financial
objectives. This process
is called financial
planning.

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Learning Objectives

At the end of this lesson, you should be able to do the following:

● Discuss the financial planning process.
● Differentiate the various tools used in financial planning.
● Provide the different steps of the financial planning process.
● Analyze the importance of corporate financial planning in
simple business situations.

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Learning Competency

Identify the steps in the financial planning process

(ABM_BF12-IIIc-d-10).

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Quick Look

Money Management

The concept of money is already embedded in our society. It is a scarce

resource; thus, the need for its circulation within the economy. With
money circulating in the system, businesses thrive and stay afloat.
Without it, firms would not be able to produce products and services. At
this time, many consider money as a necessity for their survival. Hence,
one must give focus on managing funds to uplift his or her standard of
living.

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Quick Look

Money Management

Money management refers to the process of keeping track of one’s

funds using different tools like budgets and financial plans. Simply put, it
is a key to determine the activities that concern fund allocation like
spending, saving, investing, and even paying off debts. Just imagine how
you create a budget to be able to fit up the money for the time being and
to settle your debts as soon as possible. With the use of financial tools,
one can identify strategies to achieve one’s financial goals.

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Quick Look

Money Management

Money management is not only applied in personal finance but in

corporate finance as well. Companies prepare business plans, budgets,
and forecasted financial statements to decide on the different tactics and
strategies they must implement to obtain greater profit and maximize
their wealth. Firms prepare these tools regularly to find and maintain
their strong points and improve their weak areas.

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Financial Planning Process

Planning generally involves the following steps:

Identify the Determine

current available
situation resources

1 2 3 4

Decide on tasks
Formulate to achieve
objectives objectives
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Financial Planning Process

Financial ratios and analysis

● help identify the current financial health, performance,
and position
● used to compare and forecast performance
● essential in financial planning

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 preparation of budget and
forecasted financial reports
Corporate Financial to decide the most effective
ways to maximize wealth,
Planning
given all the internal and
external factors in the
business environment.

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 Financial Planning Process

Financial planning is a step-by-step process that involves tasks and

techniques, and how these will be implemented to attain the
financial goals one has set. For individuals, this process helps them
to meet their financial goals at every stage of their lives.

Creating budget plans helps individuals to ease the challenging task

of personal financial planning. This part will be tackled in the
succeeding discussion.

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 Financial Planning

● Guides, coordinates, and

controls a firm’s financial
actions and decisions
● To attain business goals
and objectives

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Financial Planning

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 Tools Used in Financial Planning

● Key input in financial

planning
● Used to assess the
situation, set goals,
forecast performance,
and create financial
plans

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Tools Used in Financial Planning

● a comprehensive written
document that
summarizes the past,
Business Plan present, and future
situation of a business
● guides the direction of
financial planning

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 Tools Used in Financial Planning

outlines the information on

a firm’s income generation,
cash flow, and allocation of Budget
funds reflecting future
conditions

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Tools Used in Financial Planning

● shows information on
past and present
financial investments
focusing on the
Cost Projection development,
implementation, and
maintenance of project
operations

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 Tools Used in Financial Planning

● shows which conditions

would make total
revenue enough to cover
the total expenses of a
firm Break-even Analysis
● finds opportunities to
increase income while
decreasing total costs

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Tools Used in Financial Planning

Break-even Analysis

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 Tools Used in Financial Planning

● present the effects of

Financial Statement
financial transactions
and other economic
events to the business’s
financial performance
and position in a given
period

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 Business Planning

Closer L
o ok

Start-up businesses should begin with a business plan. This

becomes their guide in every aspect of business management.
One of the crucial parts of a business plan is the financial plan.
This includes assumptions and projections for the next five years.
Most investors look at this component to examine whether there
would be a high return on investment.

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Financial Planning Process

Financial
Planning

Long-term Short-term
(Strategic) (Operational)

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 Financial Planning Process

Financial Plan

● outlines the financial

actions and the expected
Long-term (Strategic) effects over two to ten
years
● basis for the creation of a
short-term financial plan

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 Tools Used in Financial Planning

Financial Plan

● implement the objectives

of the strategic plan Short-term
● specifies the attainable (Operational)
financial actions and
effects over a period of
one to two years

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 Financial Planning Process

● Control
○ connected with
planning
○ monitoring and
evaluation to
perform corrective
actions when
necessary

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 Financial Planning Process

Steps in Creating a
Financial Plan
● a continuous process

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Steps in Financial Planning

Assessing Resources

● checks on income, savings,

and other financial resources
● includes manpower,
materials, machinery, and
methods

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 Steps in Financial Planning

Setting Goals

● long-term, medium-term,
and short-term
● guides other phases of the
process
● involves consideration of
the current financial
situation
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 Steps in Financial Planning

Planning the
Course of Action

● working out a plan to

achieve the goals
● identifying persons in
charge and flow of
responsibilities

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Steps in Financial Planning

Testing for Stress

● testing how the plan can

stand various factors (risks,
inflation, etc.)
● preparation of alternative
plans in case things do not
happen as expected

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 Steps in Financial Planning

Executing the Plan

● execution and
constant monitoring

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Steps in Financial Planning

Reviewing and
Evaluating

● assessing the effectiveness

of the plan and its
implementation
● adjusting or amending if
necessary

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 Financial Planning Process

Steps in Creating a
Financial Plan

● ensures that target

deliverables are
attained
● possible alternatives
are ready

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Keep in Mind

● Financial planning is key to reaching personal and business goals. It

is especially vital to business operations as it guides, coordinates,
and controls the firm’s financial actions and decisions.

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Keep in Mind

● Financial planning involves

cash planning and profit
planning.

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Keep in Mind

● Financial planning requires input from several financial tools such as

business plans, budget and cost projections, break-even analysis, and
financial statements. The information contained in these tools are
necessary in analyzing the current situation and projecting and
forecasting future performance.

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Keep in Mind

● Companies create long-term and short-term financial plans. The

continuous process involves setting up goals, assessing resources,
planning the course of action, testing for stress, executing the plan,
and reviewing and evaluating the performance vis-a-vis the plan.

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Keep in Mind

● The financial planning process helps companies turn goals into

targets and control business activities to attain them. In times of
funds insufficiency, financial planning shows the possible
alternatives that businesses might want to take.

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