Often mentioned the lack of effective planning in the long term as one of the reasons that financial problems and failure arise. Long term planning is a way of thinking systematically in the future and foresee potential problems before they arise. Of course that there are no magic mirrors, so that the best that can be hoped for is a logical procedure and stay organized.
Financial planning establishes guidelines for change and growth in a company. In general, it focuses its attention on the overall image. This means that its interest focuses on the important elements of the financial policies and a company's investment.
To develop an explicit financial plan, the administration must establish certain elements of company's financial policy, which are:
I. - The investment that the company requires in new assets. This will depend on the investment opportunities that the company chooses to implement and are the result of the decisions of the capital budget of the company.
II. - The degree of financial leverage that you decide to use in the company. This will determine the amount of loans that will be used to finance their investment in real assets. This is the policy of capital structure of the company.
III. - The amount of cash that the company believes that it will be appropriate to pay shareholders. This is the policy of dividends of the company.
IV.- The amount of liquidity and working capital that requires the company on a continuous basis. This is the net work capital decision of the company.
However, we must not forget that all of the above has no business sense without a defined market and properly studied.
The decisions taken by the company in these four areas will affect in a direct way to its future profitability, to the external financing needs and the opportunities for growth.