Short-term and long-term financial planning

Plan your company’s short-term financing for at most one year at a time. If necessary, divide the year into shorter planning periods, such as quarterly budget plans or weekly cash management plans

In your planning, focus on your company’s liquidity and cash management. Your aim should be that company will always have enough money for payments in the short term. Find out when there is possibly too little or too much money in the company’s treasury and how long will the situation last. Plan where to get the missing funds and how to invest extra money in a profitable target.

Make sure that debt collection does not cause unnecessary expenses to your company. Maintain good and close relationships with the bank, insurance company, owners and other financiers. Encourage the people with responsibility in your company to show discipline in the management and reporting of financial matters. Find out in advance what risks are related to your company’s financing and operations.

The purpose of cash management is to ensure your company’s good liquidity in the short term. Your company’s cash reserve should always have enough money for payments. In the simplest situation, the cash reserve refers to your company's bank account and cash register. It may also include accounts payable, accounts receivable, short-term financial assets and short-term loans.

Prepare a cash reserve budget for your company. You can use this to plan how the money in the cash reserve will suffice. The cash budget allows you to also anticipate deficit and surplus in your cash reserve and to decide how to manage these. Similarly, you can use a cash flow calculation for predicting incoming and outgoing cash flows to your cash register. 

Your company’s cash reserve or bank account should have enough funds that you will be able to pay all of your company’s debts due in the short term. You can also make sure that the monies outstanding cover the loans due.

If there is not enough money in your cash reserve, take action. Try to sell goods in storage faster. Ask your customers to pay their invoices earlier. Negotiate for longer payment periods for invoices. You can also get more capital funding, a short-term bank loan or an account with an overdraft.

If there is too much money in your cash reserve, you should invest it in a profitable target according to your plan.

Long-term financial planning is concerned with time after more than a year, usually 2–5 years. It is mostly a concern of upper management, and your company’s strategy guides it.

Think about how much equity capital and liabilities your company needs. Plan how your company’s profits are distributed and used. Your solutions affect how your company’s financing will suffice in covering costs in the long term. They also guide how your company will grow and how its profitability will develop in the future.

Long-term financial planning is often concerned with the planning of investments. Think about to what, how much and when your company should invest. Investments should generate more profits compared to the costs of financing.

Draw up a long-term financing plan. This is often compulsory if your company is seeking external funding for its investments. In your plan, determine your company’s prospects for growth and the amount of the profits that the investments will produce and how you will be able to pay back the loans. A long-term financing plan will also create the framework for your company’s short-term, more detailed financing plans.