A firm’s financial plan largely involves the forecast and use of various types of budgets. These budgets are prepared for every key area of the firm’s activities such as production, marketing, research and development, purchase and so on. The financial planning professional considers his or her skills, knowledge and experience in providing the services requested or likely to be required by the client. The major steps involved in the financial planning are as follows:
(a) The financial planner explains or documents the services to be provided and defines his or her responsibilities along with the responsibilities of the client. Project financial statements and use these projections to analyze the effects of the operating plan on projected profits and various financial ratios. The projections can also be used to monitor operations after the plan has been finalized and put into effect.
(b) Determine the funds needed to support periodic plan which includes funds for plant and equipment, inventories, receivables, new product development, research and developments and for other major activities. Depending on the services requested, this assessment could include analyzing the client’s assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.
(c) Forecast availability of funds over the planning horizon. The planner reviews the recommendations with the client to allow the client to make informed decisions. This involves estimating the funds to generate internally as well as those to be obtained from external sources.
(d) Establish and maintain a system of control to govern the allocation and use of funds within the firm. The client and financial planner agree upon who will monitor the client’s progress toward goals.
(e) Develop procedures for adjusting the basic plan, if the economic forecast upon which the plan was based do not materialize.
(f) Establish a performance-based management compensation system. The financial planner and client agree on how recommendations will be carried out.