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Table of Contents



This paper aims at providing coherent information about financial planning and the advance techniques involved in forecasting financial statements. The paper will begin by defining the term financial planning and then continues to look at the steps which should be followed in financial planning.

Chapter 1. Introduction

Financial Planning and Forecasting Financial Statements

This paper aims at providing coherent information about financial planning and the advance techniques involved in forecasting financial statements. The paper will begin by defining the term financial planning and then continues to look at the steps which should be followed in financial planning.

It is prudent to note that for individuals and firms to allocate resources effectively, there is dire need for efficient planning together with forecasting of the financial statements using advance techniques in order to avoid making big errors that have been seen with the simple forecasting techniques. However, it is crucial that relevant accounting standards with respect to financial accounting board be followed while forecasting financial statements.

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According to (Rattiner 2008). Financial planning and forecasting financial statements is a necessary ingredient that is vital for not only individuals but also managers if their organization is to achieve their set goals. Before I define the term financial planning, it is important to state that there is no universally agreed definition of financial planning and there has been very little agreement as what exactly is financial planning among advisors. This has greatly interfered with financial planning as a process. This paper will coherently and comprehensively discuss financial planning and forecasting financial statements account. The paper will also look at the advance techniques for forecasting financial statement techniques.

The term financial planning can be defined as the process which aims at accomplishing the following; providing a plan for achieving financial goals and ascertaining the clients’ financial goals (Rattiner 2008).. However, for the financial plan to be effective, the following steps are vital. The first step is to establish financial goals; the second step is to gather relevant information or data. Third step is analyzing your financial data, the fourth step is to develop a plan for achieving goals, the fifth step is to implement the plan and finally you have to monitor your plan. The following paragraphs will discuss comprehensively the steps involved in financial planning.

1.1 Steps in financial planning

Establishing financial goals; the first step that anybody and organization that wish to manage his finances effectively should adhere to is ensuring that he/she establishes financial goals. This is because, goal setting is critical if the financial planning is to be successful. Goal setting enables the manger or any other person involved in the financial planning to establish achievable goal. not any other person can come up with a good financial plan which can lead to the achievement of the set goals. This is why it is prudent to engage an expert in the process of financial planning for the goal setting to be effective, the advisor or the expert involved in helping client to create a good financial plan should engage the client in a multiple questioning in order for the client to learn what they are trying to accomplish. The financial advisor will have to prioritize the client’s goals since they are likely to be many for example, the advisor should help the client to choose effectively among the competing goals such as saving for investments and saving for education. The advisor has the sole responsibility to help the client rank these competing needs.

Gather relevant data; this is the second step in financial planning process. The financial advisor involved in the financial planning process should gather relevant data for the purposes of planning. This is because the client may have a myriad of issues which the advisor may need to address. The advisor will have to define the client current situation, determine what he/she might desire in future and when such a requirement is to be met. To satisfy all these, the financial advisor will have to collect plenty of information from the client. However, such information obtained ought to be accurate, complete, up-to date and relevant to the goals which the client aspires to achieve in future. (Lee, Lee and Lee 2009).

It is crucial to note that there are two broad categories of information which the advisor should collect from the client include objective and subjective type of information. The objective information may include list of security holdings, the inventory of assets and liabilities, list of annual income and expenditures and a summary of presence insurance coverage. On the other hand, the subjective information may include hopes, fears, values preferences, attitude and the non financial goals of the client.

Step three is to analyze the data; once the relevant data has been collected, organized and checked for accuracy, consistency and completeness, the next step is to analyze the data, with the help of financial advisor. The main objective of analyzing the data is to determine where the client is now in relationship to the goals that were established by the client in step one. The analysis that the financial advisor is likely to do will reveal some strength and weakness in the client present position relevant to the goals that the client has set to achieve. The financial advisor will then disclose a number of weaknesses or conditions that are hindering the achievements of the clients’ goals. For instance, the client might have been paying unnecessarily high federal income taxes or using debts unwisely. It may emerge that the clients’ portfolio of investment may be inconsistent with his/her financial risk tolerance. The clients business interest is not being used efficiently to achieve his/her personal insurance protection goals or important loss causing possibilities have been overlooked, such as the clients exposure to huge lawsuits arising out of the possible negligent use of an automobile by someone other than the client. In this step, if the goals that the client have set to achieve in future is more than the finance that is available, the financial advisor may advise the client to revise his/her goals but if they are achievable, the advisor may go ahead to the next step of financial planning. (Lee, Lee and Lee 2009).

Developing a plan for achieving the set goals; After the data has been analyzed, the next step in financial planning is developing a plan for achieving the set goals. Here the financial adviser will help the client to devise a realistic comprehensive financial plan in order to bring the client from his/her present financial position to the attainment of the refined goals in step three. This plan has to be made in such a way that it fits the needs of the individual. The financial advisor has to ensure that the financial plan is specific and detailed according to the clients’ requirements. The plan should outline who is to do what when and with what resources .the adviser has to ensure that the financial plan is acceptable to the client. The plan should be put down in writing and made in such a way that the client can easily understand it. The format of the financial plan should be easily understandable with the client. The client has to ensure that he/she approves the plan in order to ensure that everything in the plan is in line with his/her requirements.

Step five. Implementation of the plan; this is the fifth step in financial planning. It is important to note that financial plan will only be useful if it is implemented and put into action. It is therefore prudent that the financial advisor ensure that the plan in implemented properly according to the schedule agreed upon with the client. It is important to note that at this stage the financial advisor can implement it if it is of limited scope and limited complexity. Otherwise, where the plan is too complex additional specialized professional expertise will be needed. The most fundamental role of the adviser is to motivate the client in completing the steps necessary for full implementation at each stage of the financial planning. Implementation is vital if the plan is to be beneficial to the client.

Step 6. Monitor the plan; this is the last and most fundamental step in the planning process. Even after the implementation of the plan, there is need to constantly monitor the plan. This means that the relationship between the financial adviser and the client should not end at the implementation stage, it should be ongoing. The advisor has to meet with the client severally in order to review the plan. The first part of the review process should entail measuring the performance f the plan. This is done in order to determine whether the clients plan is in the right direction or if it is achieving its intended purpose. The second reason why financial plan should be reviewed is to update the update the client’s personal and financial situation. I case the review indicates satisfactorily performance, there will be no need to carry out any action but if the performance is not acceptable because of the change in client’s personal or financial circumstances or goals or in the economic, tax or financial environment then it call for the advisor and the client to review the plan in order to fit the new situation. The review should follow the six steps that have been used to develop the plan initially.

The following figure shows the schematic financial development process.

1.2 Importance of financial planning

After comprehensively discussing the steps involved in financial planning, it is prudent that we look at the reasons why financial planning is important. This part of the paper will discuss comprehensively the reasons why we need to carry out financial planning.

Financial planning is important both to the business organizations and the individual. planning enables one to manage his/her income in the most efficient and effective manner. Planning enables an individual to know how much money he needs for various purposes such as for tax payments, savings and the general monthly expenditure. An organization that plan with its finances is likely to record better result because instances of financial embezzlement will be minimized.

Financial planning also enables an individual and the organization to increase cash flow. Research indicate that the organizations that carefully monitor their spending patterns and expenses and carry out effective tax planning, prudent spending and careful budgeting is likely to keep more of their hard earned cash. An increase in cash flow will in turn lead to an increase in capital hence allowing the organization or individual to consider investing in order to improve the overall financial well-being. (Brigham and Ehrhardt 2010).

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Financial planning is also important since it act as family security. it is important to note that having a proper insurance coverage and policies in place for your family can provide peace of mind for both you and your loved ones. As we all know the world is full of uncertainties. No single individual is sure of being a live tomorrow. It is therefore prudent to have a good financial plan for your family so that you have peace of mind.

Financial planning is also critical in investment. Financial planning act as a guide in helping choose the right investments that fits individual needs, personality and goals. Savings that have been created as a result of financial planning can be of great benefit especially during difficult times. For instance, financial planning can enable one to set aside enough insurance coverage to replace any lost income in case the family bread winner become enable to work.

Financial planning is important to the company because it enables the company to estimate the earnings which are being anticipated in the upcoming period. It is true that without making such estimates, the company is likely to fail. Financial planning can also be of great benefit to the company especially when it focuses on making investments of profits into diversified portfolio. (Gitman, Joehnk and Billingsley2010).

It is next to impossible for any given company to survive without proper financial planning. So it is prudent for the company to set up a good financial plan that reflects what is to be achieved in the organization right from the beginning. The plans also need to be revised and updated constantly every year or each quarter. This will ensure that the company runs on the right and planned track.

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