We've got a gang of clueless bozos steering our ship of state right over a cliff, we've got corporate gangsters stealing us blind, and we can't even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, "Stay the course." Stay the course? You've got to be kidding. This is America, not the damned Titanic. ~ Lee Iacocca Finance planning legend.
A probably angry Lee Iacocca was indicating that finance is something that has to be pre-planned, 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 basically, financial planning and growth forecasting, both involve, the answers to the 4 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, whereas a financial planner, one has to find legitimate answers to 4 questions, namely: Why should we be producing a specific item on the menu card? (consider cost of production and sales price) When should we produce such an item and for what time duration? (bear in mind seasonal costs, inflation of raw material prices) Where should we produce the item, right in the shop or some production center? (consider transport cost, nature of goods and selling cost) 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 competitor's performance, pricing and distribution is an absolute necessity. In such a scenario, you may also prepare a cost sheet of the financial...