Tools Used In Financial Planning

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Financial planning is a task that involves extensive use of various tools and techniques that help to achieve prudent and prudent financial planning. Today we will discuss about various financial planning tools that are used by financial managers to ensure successful and safe investment opportunity plan.

Planning the finances of a small business allows the owners to navigate the different stages of their business. Planning and managing requires key tools acquired through continual self-education. Sound financial planning tools and techniques allow business owners to anticipate opportunities and prepare for contingencies. It provides better choices when life’s inevitable events occur.

Business Plan

A solid business plan is the first tool that should be used in financial planning: It is the quintessential financial planning tool example. Business plans list every critical aspect of a company. The plan begins with a short overview of the entire plan and a history of the company. The second part of the plan analyzes the market. It provides an industry description, identifies the target market and all strengths, weaknesses, threats and opportunities.

The remaining areas of the business plan describe the company and how it will be managed. They include information regarding marketing strategies, what products or services are offered, and how the company’s expenses will be financed.

Budget and Cost Projection

One key tool for financial planning is to prepare a budget and project costs. To prepare a budget, you need to formulate a reasonable sales projection, factoring in peak and off-seasons. The budget will determine how much cash is available to the business. New businesses will include funding obtained through personal financing, bank loans, investments and other sources. Once money forecast is available, business owners can look at the different categories of expenses and determine how much to spend in each category, according to Indeed. Most budgets are works in progress and are continually revised.

Break-Even Analysis

A break-even analysis is an essential tool for financial planning. It predicts what gross sales volume the business must achieve to cover its expenses, says Corporate Finance Institute. All sales beyond this point are profits. For new businesses, owners should assess their early predictions and determine how accurate they were. Adjustments might be needed for the next financial period. Mature businesses benefit from this tool as well because they can check their current break-even point and look for ways to lower it and increase profits.

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Financial Statements

Financial statements contain information about the company’s assets, liabilities, profits and losses, making them conventional financial tools for business. Understanding and preparing accurate financial statements is important to the success of a small business. The two most important types of financial statements are the balance sheet and the income statement.

The balance sheet lists assets, liabilities and equity. The income statement lists revenues and expenses. Revenues minus expenses equals net income. Analyzing the relationship between the balance sheet and the income statement can pinpoint strengths, weaknesses and opportunities. Financial statements also help business owners prepare tax returns and loan applications.

Financial Planning Tools and Resources for Businesses and Organizations

Financial analysts do more than simply rely on technology. They have become technologists themselves. They deliver the benefits of predictive and prescriptive analytics and other advanced financial planning tools to their organizations’ senior officers and business managers.

Software vendor Vena Solutions explains that financial planning and analysis software now offers real-time reporting, centralized cloud-based databases that improve accuracy, and self-service dashboards that are customizable and easy to use.

Following are some of the most common uses for financial planning and analysis software, services, and resources.

Acquiring and Maintaining Capital

  • Financial capital is the lifeblood of any business, whether in the form of assets, securities, or cash. From a financial planning and analysis perspective, acquiring and maintaining capital requires finding the optimal balance between debt and equity, which are the two common forms of capital, as Investopedia
  • The U.S. Small Business Administration’s Business Guide presents the funding options available for business owners, beginning with techniques for determining how much capital the business needs to raise.
    • Self-funding, also called bootstrapping, entails relying on the owner’s capital, such as cash from savings or a retirement account. While this form of acquiring capital gives the owner complete control, it can be expensive if costs aren’t controlled or tapping retirement funds involves fees or penalties.
    • Capital raised from investors in exchange for a share of ownership, and sometimes a management role, allows the company to grow quickly and avoid taking on debt, but owners lose some control over the operation.
    • Business loans allow owners to retain full control in exchange for having to pay interest on the outstanding amount along with repayment of the principal. To qualify for a loan, the business should have a business plan, expense sheet, and financial projections for the next five years.
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Budgeting, Billing, and Payroll

  • Budgeting and forecasting software improves the accuracy of financial plans by automating many data collection processes. This reduces errors resulting from manual data entry, as Software Advice Automation also benefits billing and payroll projections created by an organization’s financial analysts.
  • Financial software vendor AssessTEAM lists the key performance indicators that are most important to financial analysts who are working on reports and forecasts relating to budgeting, billing, payroll, and other accounting operations.
    • Budgeting and forecasting deals with cash forecasting, budget production, budget iterations, budget line items, and budget variance and adjustments.
    • Billing (accounts receivable) encompasses calculating outstanding sales, average days from invoice to full payment, cash conversion from merchandise to final sale, billing error rate, active customer accounts, and payment types (checks, electronic funds transfer [EFT], wire transfers, etc.)
    • Payroll functions include calculating compensation as a percentage of total business expenses, payroll taxes as a percentage of total revenue, payroll form error rate, and payroll process changes cycle time. Financial analysts also monitor checklists for functions such as check processing, tax administration, and business unit accounting.

Investments and Revenue

  • Financial analysts who are charged with managing their company’s investments need tools that help them devise strategies in the short term and long term for acquiring and disposing of financial assets and other investments.
  • Investopedia describes the duties of investment managers as including asset allocation, financial statement analysis, stock selection, and investment monitoring. The assets that are managed include bonds, equities, commodities, and real estate.
  • Revenue management from a financial planning and analysis perspective entails the use of analytics to optimize the price and availability of products based on predictions of customer behavior, as RevFine
  • More broadly, revenue management applies data analytics to inform business decisions with the goal of increasing revenue generated through the sale of the same amount of products and services.
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Retirement Planning

  • Financial professionals who offer retirement planning services help their clients determine the amount of money they will need to fund their retirement. They also explain the steps their clients must take to raise sufficient retirement funds from savings and investments. Investopedia describes several aspects of retirement planning that often involve financial analysts.
    • Converting home equity into a retirement asset
    • Planning distributions from an estate, especially with regard to tax implications
    • Ensuring that retirement funds are taxed as efficiently as possible when they are distributed
    • Buying insurance to protect assets and prepare for medical expenses

Managing Debt

  • Often the difference between success and failure for a business is how well it manages its debt. A common tool used by investors to determine the risk of a corporate investment is the debt-to-capital ratio, which is the total debt of a company compared to its total capital (debt financing and equity). Investopedia explains that a ratio of 0.5 or less indicates the company is on sound financial footing, while a ratio of 1.0 or above means the firm is technically insolvent.
  • Financial analysts help companies reduce their debt-to-capital ratio and improve their chances of attracting investors. They do this by enhancing a company’s inventory management, restructuring its debt, and taking other steps to boost profitability. In practice, several such steps are taken at the same time, often accompanied by price increases or cost reductions, depending on market conditions.


Anyone who has started or worked for a business knows that managing money is crucial in determining either your success or failure. The same applies to financial planning in personal life. Financial planning involves making decisions on how much money should be saved in order to cover the future expense. As important as financial planning is, it will not yield positive results if you don’t use the right financial tools. The right financial management tools are used by top level business owners and entrepreneurs to keep track of the expenses and income of their companies. To ensure successful financial planning, you will need to get familiar with different financial management tools used by financial analyst.

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