Long-term Financial Planning for Businesses

A probably angry Lee Iacocca was indicating that finance is something that has to be preplanned, planned, re-planned and even post-planned. Financial planning in itself does not involve just setting budgets, wage rates, or deadlines. It is all about getting to know realistic work schedule, the manner in which they can be executed, back up plans that can be used, and the least cost with the help of which the entire project can be executed. So in general, these aspects and growth forecasting, both involve the answers to the four important questions: why, when, where, and how (answers have to be cost oriented).

Steps in Long-term Financial Planning

Step 1: Let us take the example of a coffee shop, where a financial planner has to find legitimate answers to 4 questions, namely:

1. Why should we produce a specific item on the menu card? (consider cost of production and sales price)
2. When should we produce such an item and for what time duration? (bear in mind, seasonal costs, inflation of raw material prices)
3. Where should we produce the item: right in the shop or some production center? (consider transport cost, nature of goods, and selling cost)
4. How should one produce the item, manually or mechanically? (consider equipment and personnel cost)

Step 2: The second step is to assess your business environment. In this step, surveying the competitors’ performance, pricing, and distribution is an absolute necessity. In such a scenario, you may also prepare a cost sheet of the financial features of production, namely the money that you would have to invest as a manufacturing cost, its sales cost, and the profit that it would yield. Logically, the sale price should be more than the cost price, and the return-over-asset ratio/return-over-investment ratio should be healthy. While finalizing these three figures, you will need to take into consideration three important aspects:

1. Average spending capacity of your customers
2. Your competitors’ quality, quantity, and price
3. Popularity of the product, potential market, customer retaining capacity of the product, etc.

Though the trend of such products is more experimental in nature, they might become full-time, public favorite products; hence, it is also important to make a financial provision to recover losses that arise in the experimental period, until the product establishes itself in the market.

Step 3: The third and fourth step are more analytical in nature and from the finance point of view, they are also quite expensive. The idea that you need to implement in the third step is allocation of resources in such a manner that you tend to make a genuine profit in sales during the long run. In this step, you will be using and analyzing cash flow statements on almost a daily basis. The key is to have uniform cash outflows for consecutive days/months/years. Cash outflow is typically all expenses and losses. Losses are quite uncontrollable, but expenses are surely controllable. Hence, search for raw material sources, manpower, and production processes that will help you to maintain uniform and low per-unit cost for the item/product. For example, have regular suppliers, who will supply at an agreed and uniform cost. This uniformity will eventually come in handy to curb and control unexpected losses, and will also help you to keep a good hold over the market.

The second part of the third step is making monetary provisions. This is absolutely essential due to the fact that no business is risk-free. Such provisions include advance to the raw material supplier, insurance, provisions for bad debts, extra services, etc.

Step 4: Retain, sustain, and entertain; this step is quite an advanced one, and typically includes many different aspects that aim at retaining the customers. The first important function of this step is to generate regular data and cash flow statements. With the help of these statements, you will realize whether that very item on the menu is proving to be profitable or not. At the same time, you also need to maintain a statement that records cash inflows and outflows over a longer period of time (in months or a quarter). Thus, you will realize what is profitable for your business and what your customers want.

To sum up the whole theory, it can be said that long-term finance planning is a three-dimensional graph, with customer, product, and market being the dimensions. The essence of cost and time is added to every dimension. After all, the key to success is to facilitate all three dimensions logically, bearing in mind this essence.

Basic Money Management Skills

Money. That which makes the world go round. It all boils down to the money that we have at the end of the day. Money determines the way we live, what we do, and basically every other decision of our lives. Without money, we are basically nothing. And that, I know, is something that no one will want to go through. So it becomes imperative that we earn well. But earning well is not the end all of everything. It actually begins from there. Money which is earned, needs to be managed well, so that we continue to benefit from it for a long time. And therein comes the part where we need to learn some basic money management skills. Because without these, we will not be able to develop effective methods of money management.

Most of us do not have the knowledge of what some of the most simple and effective money management skills are. So to help you out, this article shall provide you with just that.

Money management skills are not difficult to learn once you get the hang of how to go about it. Given below is a step by step plan that you can follow in order to nurture some of these skills.

Take Stock
The first thing you need to do is calculate how much you are earning. Add in all the resources. Once you have this figure, calculate how much money you need to spend every month. To learn how much you spend every month, the best method is to write down each and everything that you spend for a couple of days. The amount will most generally exceed the amount that you had in mind―that’s because we don’t realize how much we end up spending on small things. Keep in mind that you need this spending figure to learn the basic skills. It is also important to note that the figures of two months will never be the same, there will be more expenditures incurred in a particular month and not so many in the next. But an average figure can be definitely arrived at.

Allot Amounts
Now that you know an average amount of the money that you need to spend for a month, it’ll be easier to allot amounts to different things. Make a list of all the things that you need to spend on―rent, tuition, bills (newspaper, Internet etc.) groceries, emergency (very important), and miscellaneous. You can make a long term-short term list as well. Like monthly/weekly/daily, and segregate the items accordingly. Now calculate the amount that you need for each and allot the money accordingly.

Many people use the envelope method for household items and it seems to work for them. For this, use different envelopes and mark them―for example ‘vegetables’, ‘toiletries’, ‘groceries’ etc, and at the beginning of the month fill the envelop with the amount that you need. Stick to that amount no matter what. When you put it down on paper like that, you are constantly reminded of it and the tendency to overspend is curbed.

Take Care of Debts
Never ever keep a debt. Pay a debt off as soon as you can, because if you keep on piling it, it’ll just keep getting bigger and bigger and cut into your regular saving plan. Find out how much you owe and what you need to pay off―that is the first step in managing your debt. Credit cards, surplus bills―everything needs to be paid off. Make a plan for the same. How? Along with the other envelopes, make another one for the debts so that you have a clear segregation made. It might be difficult in the beginning, but once you start physically putting in the money, you’ll deal with the problem head on and with continued efforts, the amount will be paid off.

Plan the Future
Now that the preliminary stage is taken care of, you’ll need to save for the future. The most important thing to do here is draw up a goal. What do you want to save for? Retirement? Children’s education? A house? Car? Or even small plans like a music system, a new phone etc. Calculate the amount you’ll need to save for it. This is your first step. The next steps will be how to get that money in a stipulated period of time.

Budget
Having a budget is really important. One way of budgeting is the envelope way, so that you don’t end up spending more when you have already allotted a fixed amount to yourself. The second method of making a budget, and this is somewhat of a conscious change in attitude, is that you get it in your head to budget things. Consciously decide that you want to budget. Do not spend recklessly. Other than that, planning for the future and drawing up plans of the things you need to save for will help you to budget well. This is because you’ll know what and how much you need to save up on to get that amount.

Invest
After paying all the bills, the surplus amount that lasts needs to be invested well. There is nothing worse than stagnant money. So consult a financial adviser or an investment adviser who will calculate how much you can afford to save per month, after deducting the expenditure and surplus. After this he will draw up a scheme that suits you best. It could be anything from a fixed deposit account to investing in mutual funds or buying property as assets.

Easy Saving Tips
Along with budgeting and drawing up plans, you can also consciously decide to save. Here are some money saving tips that you can use:

– Buy things in wholesale.
– Instead of buying books, join a library or start a club. Use this same formula for different things.
– Car pool to work, that will save on money for gas AND is good for the environment.
– Buy things on sale.
– Go through your daily expenditure sheet, you will find that there are several things in there that you can easily give up. Like a very expensive brand of hair product.
– Turn off the power when you don’t need it.

Earn Extra
It has been found that we never tap the full potential when it comes to expending our talents or finding other means of earning some extra money. This is one of the more indirect money management skills that we need to learn. Here are some of the easiest ways to make money―taking on freelancing jobs, giving tuition, making use of your hobbies and talents like singing or dancing (giving classes, singing in a club) or cooking (providing snacks for a establishment or making a fixed amount for a bakery). Other methods include, selling things for scrap, holding garage sales etc.

Acquiring money management skills allows you to live better. It secures your future and helps you gain control over your life rather than the debts and money problems controlling you. It should therefore be our prerogative to learn and practice the several money management skills to lead a more fulfilling and comfortable life.

How to Survive Being Broke

So you’ve just been laid off. You’re frantic about what to do because you don’t have any savings. Your bills are not suddenly going to disappear. How in the world will you make it until you have a regular income again? Do not fear, because we have seven tips that can help you keep the cash coming in and pay your bills.

The very first thing to do before trying to make more money, is to eliminate all your unnecessary spending. If you have some optional monthly expense that you can do without, cancel it. Cut back on things like eating out, going to the movies, and anything else you normally do that isn’t absolutely essential.

Apply for any kind of work: If you are desperate for funds, one of the most productive things you can do is apply for a job, any job! It doesn’t matter if you’re overqualified. Some income is better than none.

Tell your friends you are looking for work: Let’s be honest. If you have a personal connection to a potential job, you are more likely to land the job than someone without it. Even if your friends don’t know of a full-time position that you are qualified for, they may know of something part-time that can help.

Find freelance work online: If you can write or take photos, you can find work online. Some websites offer talented freelancers the opportunity to make some extra income doing things they enjoy. When searching for freelance work, however, be careful about getting involved with any site that requires you to pay an initial fee. These can be scams to take your money and not deliver results. Look for reviews of the site from people who have used it, to be sure you’re actually going to get what you pay for.

Check the classifieds: You may think of the classifieds as a place to look for a full-time job, but lots of short-term opportunities also exist. You can take a look at both the newspaper as well as the posts on Craigslist in your area, to see if there is something you are qualified to do. Another alternative is to create your own ad announcing the services you offer. Again, beware of people that want your financial information before offering you work.

Sell your belongings: It may be painful, but desperate times call for desperate measures. You can hold a yard sale to get rid of some of the things you don’t really need. If you aren’t in the mood to hold a yard sale, you can try taking your more expensive items to a pawn shop in order to get some quick cash.

Sell your own body products: It’s possible to make a little money by selling plasma, sperm, or eggs. Human plasma is something that exists in your blood that you can be paid for. It’s not a huge amount of money, but it does add up, and it is decent money for sitting still for a few hours. Check with your local Red Cross if you are interested in selling plasma. If you’re a man, you can contact a sperm bank to see if they are seeking donations. If you can make it through the rigorous screening process, then it is possible that you can get paid to donate sperm. If you are a woman, you can donate your eggs to be used in fertility treatments. Of all the options mentioned here, donating eggs is the most lucrative. If you are interested, check with a local fertility center.

Welfare: If you are completely out of options and you simply have no way of making money, welfare may be the way to go. There are many different programs designed to help people who need financial assistance. Don’t let pride keep you from something that can help you get back on your feet. To find out what programs are offered in your area and their requirements, check with your local authorities.

So there you have it, seven great ways to keep some money coming in even in these tough times. Lacking a source of income can be a huge inconvenience, but it is possible to survive until you can land another full-time job.

How to Become a Financial Planner

Financial planners or advisers are professionals who educate people about the necessity and advantages of investing money, and also guide them in making lucrative decisions regarding the same. They analyze an individual’s current salary, lifestyle, priorities in life, and also his goals, and make a plan that would help in reaching the set goal. They help people in insuring their money for emergency purposes. Some people take up the responsibility of money management themselves. However, there are chances that they may make mistakes due to inadequate knowledge and inexperience in this sector, causing them to lose their hard-earned money.

Taking the help of a planner has become quite common in recent years, either because people are too busy, or because they do not want to take a risk of investing their money wrongly. In this age, when people are very busy, they rely on experts to make important decisions regarding their money. This job is, therefore, very hectic, and involves huge responsibilities. Here are certain important things you need to know if you plan to get into this field.

Becoming a Financial Planner

It is not necessary to have a bachelor’s degree to get into this profession. However, it definitely adds points to the work profile and earning potential. It would be beneficial to complete your graduation in the field of finance, economics, mathematics, statistics, business, or law. Studying these subjects would help in understanding issues and intricacies of financial management. Graduating as a Chartered Financial Analyst or a Chartered Financial Consultant would also help. You can also enroll into courses related to estate planning, investments, risk management, and taxes.

To practice as a professional financial adviser, you need to have certification. Those who aspire to be certified, should have a graduate degree, and most importantly, at least three years of experience in the field. The three years of working is when you would receive the actual training for your career. You would be dealing with the practical aspects of the theories you have studied. During this time you would learn how to how to deal with customers. Your main job would be to guide them in planning their finances according to their individual needs. This would also help you in building business relationships with the clients.

Once you complete the experience requirement, you would have to give an exam, that tests your skills. You would also have to undergo an ethical practice and background check. After you are certified, you can either work for an investment company or financial management company, or choose to set up your own business.

The salary varies greatly. Initially, when you start your career, you would enjoy a fixed salary, though it would not be a very huge amount. However, once you become a certified financial planner, your income would depend on commissions, or direct payment for the service you have provided to the client.

Careers in finance have become one of the most sought-after ones in the recent years. Along with educational qualifications and experience, you also need excellent communication skills for this job.

The Financial Planning Process

It is essential that all of us have some goals in life. Short-term goals include a good job, great career, and small investments. Long-term goals include buying a house, children’s education, retirement policies, etc. Financial planning is one of the most crucial decision of one’s life. If you start planning early, you can get out of a financial mess that can arise later in life. It is very common to spend more than what you earn. Of course, there are facilities, like credit cards, buy now pay later schemes, installments, etc., which compel one to overlook their finances. At the end of the month, when bills keep pouring in your mail boxes, you find yourself in a sticky situation. And this mounting bill payment adds a semi-colon to your long-term dream of owning your own house. Sometimes, medical emergencies also forces you to dig into your children’s education fund. Marriage plans for your only daughter? You borrow some money from your retirement fund. There goes the trip to Egypt, you have planned all those years!

The answer to all the above mortifying financial situations is ‘Financial Planning’. The planning process helps give a direction to your financial decisions. It helps you decide various investments that can bail you out of your financial problems. For example, investment in mutual funds may help you repay the loan or save enough for your retirement. Once your financial goals are set, it helps make your life more secure and flexible for any financial emergency that may arise.

You can carry out your own financial planning by taking a guidance from self-help books, newspapers, magazines, the Internet, or discussing your financial needs with your spouse. If you feel, you can’t handle it yourself, then opt for a professional financial planner. This Buzzle article, will help explain process related to financial planning.

Six Steps of Financial Planning Process

It is important to be well versed with the entire process of financial planning. This will help you plan major updates of your life as well as unseen occurrences. It is you who needs to be in control of your finances, not the other way round.

Establish Mutual Relation

Develop a relationship of trust and respect with your financial planner. The purpose is to help both parties know what is to be expected. During this stage, the services that the financial planner will offer you should be discussed in detail. It is also the right time to decide how will the financial planner be compensated for his/her services. You can also come to a decision as to who will keep a track of the finances once invested.

Assemble Data

The financial planner will meet you and discuss your financial situation. You should come to a mutually agreed goal regarding your financial and personal goals. You should decide the time period and the expected results from your investments. You should be made aware of all the risks, if any, involved. The financial planner should help you make the financial goals, which can be made possible from utilizing your current income into savings and investment program.

Estimation and Assessment of Current Financial Status

Your current financial situation should be assessed by your financial planner to decide the plan of action. This may include estimation of your current assets, liabilities, and cash flow. The insurance coverage, investments, and tax strategies are also considered.

Presenting Recommendations and Alternatives

The financial planner should prepare an investment program based on the information provided by you regarding your financial goals. The planner should explain the recommendations and inform you about all the minor details. This will help you decide your financial move. He should also be able to come up with alternatives, if you are not satisfied with the recommendations offered.

Execution of Financial Planning Recommendations

The planner becomes your guide during the implementation of the recommendations of the financial goals. He takes decisions on your behalf and coordinates with your attorney and stock brokers.

Management and Auditing Financial Plan

You and your planner should decide who will keep a track of your investments. If your planner is in-charge, he should give you periodic reports on your financial situation. If there are any sudden changes in your life, he should be able to give you alternatives for the same.

It is wise to set goals, which are achievable during the financial planning process. If you understand the importance of becoming financially stable, planning for the future will become very easy. You should take into consideration all the possibilities that can affect your life due to your financial decisions. It is good to start early in life and not wait till you near retirement age. You should get over the notion that financial planning is for rich people. Investments should not be considered as financial planning. You should be in-charge of your money and monitor it at every step. It is wise to plan your finances according to your income. Better be well-prepared financially, before a crisis comes barging at your door. In this unpredictable world, it is best to have a safe financial security, not just for yourself, but for the future of your whole family.

Importance of Financial Planning

A broad definition of personal financial planning can be stated as, “a process of determining an individual’s financial goals, purpose in life, and life’s priorities, and after considering his resources, risk profile and current lifestyle, to detail a balanced and realistic plan to meet those goals.”

Financial Planning

It is a process which presents before an individual, organization, or even a country, the current financial position and the adjustments in the spending pattern, in order to meet the goals.

Importance of Financial Planning

It is important to plan finances in order to reap long term benefits through the assets in hand. The investments that one makes are structured properly, and managed by professionals through financial planning. Every decision regarding our finances can be monitored if a proper plan is devised in advance. The following points explain why financial planning is important.

– Cash Flow: Financial planning helps in increasing cash flow as well as monitoring the spending pattern. The cash flow is increased by undertaking measures such as tax planning, prudent spending, and careful budgeting.
– Capital: A strong capital base can be built with the help of efficient financial planning. Thus, one can think about investments, and thereby improve his financial position.
– Income: It is possible to manage income effectively through planning. Managing income helps in segregating it into tax payments, other monthly expenditures, and savings.
– Family Security: Financial planning is necessary from the point of view of family security. The various policies available in the market serve the purpose of financially securing the family.
– Investment: A proper financial plan that considers the income and expenditure of a person, helps in choosing the right investment policy. It enables the person to reach the set goals.
– Standard of Living: The savings created by through planning, come to the rescue in difficult times. Death of the bread winner in a family affects the standard of living to a great extent. A proper financial plan acts as a guard in such situations, and enables the family to survive hard times.
– Financial Understanding: The financial planning process helps gain an understanding about the current financial position. – Adjustments in an investment plan or evaluating a retirement scheme becomes easy for an individual with financial understanding.
– Assets: A nice ‘cushion’ in the form of assets is what many of us desire for. But many assets come with liabilities attached. Thus, it becomes important to determine the true value of an asset. The knowledge of settling or canceling the liabilities comes with the understanding of our finances. The overall process helps us build assets that don’t become a burden in the future.
– Savings: It is good to have investments with high liquidity. These investments, owing to their liquidity, can be utilized in times of emergency and for educational purposes.

The argument made by people from low income groups is that they don’t need to plan their finances due to the less money they possess. However, no matter how much one earns, better planning of income always helps in the long run.