What is Financial Planning and Budgeting in Businesses?
It is a framework, comprehensive evaluation that explains the proper utilization and implementation of finance in different business domains for its future growth and development is referred to as financial planning. Financial planning is a definite task determining how a business entity will achieve its strategic goals. It is essential to start at an initial stage because established companies, over time, might have to undergo financial restructuring. Let’s have a glance at the benefits that you will be able to derive by implementing a financial plan. A financial plan helps in the following:
- Better management of finance
- It gives a holistic view of the business.
- Create integrated strategies and interconnect them with financial growth
When it comes to financial budgeting, it looks into allocating funds for a shorter duration. A financial budget is a plan for a specific period, generally a year. It generally focuses on the budget surplus or deficit at the end of the period.
Types of Financial Planning
Cash Flow Management
Cash-Flow gives insight into the inflow and outflow of cash while carrying out business activities. This helps to keep track of the cash-flow activities and change them accordingly if required.
This is another type of financial planning. Investments are meant to grow your money over some time. This includes investment in various domains like bonds, mutual funds, forex, etc. Investment management can help you uplift your financial scenario.
Insurance is another type of financial planning that is meant to cover unforeseen situations. Failing to plan for insurance can affect your financial planning to a great extent.
Tax is one domain that businesses must avoid. It becomes a mandate to pay corporate and individual taxes depending on the profits earned. Tax planning is another area you need to look into when it comes to financial planning.
Real Estate Planning
Wealth creation can increase your financial position. Asset creation is a significant option with low risk and high investment return.
Types of Financial Budgeting
1. Zero-Based Budgeting
In this type, the baseline is considered zero instead of the previous year’s budget. The benefit of zero-based budgeting is that it is cost-friendly but involves a vast documentation process.
2. Top-Down Budgeting
Here, the top officials prepare the budget plan, which needs to be followed by the lower level of management.
3. Bottom-Up Budgeting
This is the exact reverse of the earlier one. Here, the inputs are fetched from the lower management and considered while the top management prepares the budget.
4. Activity-Based Budgeting
Here, the budget is prepared according to the organizational activities. Now, let’s get down to the process.