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What Are the Benefits of Financial Planning and Analysis?

When businesses engage in financial planning and analysis, they often discover an income or expense problem.
Financial planning analysis requires an individual who understands and is trained in investments.
Article Details
  • Written By: Osmand Vitez
  • Edited By: C. Wilborn
  • Last Modified Date: 17 November 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Financial planning and analysis is the process of reviewing current finances and finding ways to improve income levels. This process can be used for both personal and business finances; though the monetary amounts are different, the process itself remains the same. Together, planning and analyzing an individual's and business' finances can help provide each with a financial road map and guide future decisions.

The first step in financial planning is creating a budget and focusing on reducing expenses. Long-term investments can provide returns from retirement accounts or investments. Analysis is the follow-up process as individuals and businesses evaluate the return generated from investments.

Financial planning and analysis for individuals often requires the use of an individual trained in financial investments. These professionals will discuss how an individual can profit from different types of retirement accounts. This involves going through a variety of mutual funds or other stock accounts to discover which ones, such as high growth, conservative, or international, will serve the investing strategies of the individual.

Business will also use a similar process, although the financial planner may be on staff with the firm. This individual will find investments that allow the company to place capital for a specific period of time to increase returns on saved capital. Unlike individuals, a company can make a direct investment into a firm without having to purchase stock.

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When individuals and businesses engage in financial planning and analysis, they often discover an income or expense problem. Low income can result in the inability to properly invest as too little income does not leave enough capital for this process. High expenses are the other problem in this equation. Individuals and businesses with high cash expenditures are spending away their future investment income. One of the main benefits of financial planning and analysis is that it pinpoints these problems and allows the business or individual to make corrections in spending so that more money can be invested for the future.

The analysis portion of financial planning and analysis focuses on measuring the return associate with investments. For example, younger individuals can often have accounts that experience lower returns. The low returns over a longer period of time will still increase the individual's financial returns. Older individuals will typically be more aggressive to advance the amount of financial returns from investments. A benefit of analyzing the accounts closely is that it will help ensure that adequate returns are being earned and the account holder faces no surprises about lower than expected returns.

Businesses are the same way. If a company does not have sufficient returns on investments, it cannot operate without this income. Losing money during this period is also detrimental to businesses as it may take longer to recoup this money from normal business operations.

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