The paper "Long Term Financial Planning" is a perfect example of a finance and accounting coursework. It is important for companies to plan for both their short and long term operations. Short-term planning is only meant to cover a period not exceeding 12 months. It is meant to ensure that companies have sufficient cash resources in order to pay for its immediate short-term borrowings and thus, lending is agreed to guarantee operations to its best advantage. However, long-term financial planning is meant to guide into achieving long-term’ s objectives and goals and thus, the investments are directed to meeting these goals as finance is raised (Financial Planning Is a Long-Term Proposition, 2014).
In the course of planning for long term purposes, a company is expected to consider possible aspects of dividends policies and, also the level of external financing that will be required. A company is expected to analyze the necessary debt ratios for these operations (Financial Planning Is a Long-Term Proposition, 2014). It is essential to comprehend that a conservative capital structure might translate to a higher reliance on new share issues. A long financial plan, for this case, is used for purposes of enforcing consistencies in a way that provides solutions to possible challenges in order to uphold decisions made (Grimes, 2013).
Subsequently, the focus on establishing a given framework of consistent goals and objectives, the long term financial plan ensures that the analysis of a company’ s performance is directed towards attaining these objectives. The aspect of long term financial planning is basically focused on the bigger picture of the company’ s operations. Most of the entity’ s capital expenditures are proposed and implemented by the underlying company managers (Grimes, 2013).
On the contrary, the final long term budget should always depict the strategic plans as directed by the senior management. Businesses enjoy positive net present values of their respective investments in cases where a company portrays an actual competitive advantage (Grimes, 2013). Long term strategic plans focus on the identification of business investments with positive NPVs and thereafter, ascertains their expansion. The financial plan is also meant to recognize businesses to sell or liquidate and, also those that should be allowed to operate.
Long strategic plans involve aspects of capital budgeting on a wider scale (Grimes, 2013). In this case, long term financial planners try to examine investments by their respective lines of businesses and thus, avoid possible derailments due to unattended details. A recent example is when Verizon announced that it was going to spend billions of dollars to launch fibre-optic based broadband technology to most of its residential customers as a way of conforming to objectives of a long term financial plans (Alhenawi & Elkhal, 2013). In most cases, long term financial planners do not rely on a project-by-project basis so that smaller projects are accumulated and treated as a single project.
At the very onset of a long term financial planning process, a company’ s staff management might require each of the departments to submit, let’ s say, three alternatives on business plans extending to at least 5 years of operations (Alhenawi & Elkhal, 2013). They might go-ahead to develop an aggressive growth plan calling for heavy capital investments and intensive growth of existing markets. They might also go ahead to oversee the normal growth planning for which departments develops with its markets but taking caution not to overstate expenses with its immediate competitors.
Subsequently, there is also a chance to plan for retrenchment of workers in case it is evident that the markets have reduced not to support past demands (Alhenawi & Elkhal, 2013). These forms of long term financial planning are meant to ensure protection in cases of lean economic times. Thus, the long term financial plan for this case will involve a detailed summary of all capital expenditures, working capitals needed and also, significant strategies needed for raising funds for these investments (Alhenawi & Elkhal, 2013).
Alhenawi, Y., & Elkhal, K. (2013). Financial literacy of U.S. households: Knowledge vs. long-term financial planning. Financial Services Review, 22(3), 211-244.
Botos, K. (2014). Finances and Life Cycles. Public Finance Quarterly (0031-496X), 59(4), 413-424.
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Grimes, P. (2013). Economic Assumptions in Long Term Financial Planning. Banking Ireland, 119(1), 13-15.
Rhyne, L. C. (1986). The Relationship of Strategic Planning to Financial Performance. Strategic Management Journal, 7(5), 423-436.