List and briefly describe the components of a financial plan

List and briefly describe the components of a financial planning model.

Solution

A financial plan has three critical components:

The first of these is the organization’s current financial condition. It is the basis of the financial plan in that it provides an overview of the financial future of the organization.

Second is the organization’s working capital management – which deals with current assets and liabilities. These are short-term operational finances.

Third is the managerial accounting portion, which provides financial goals to each organizational level, e.g., department, unit, diagnosis or service rendered. These portion of the financial plan measures frequent comparisons against actual results, in an effort to create realisticgoals and benchmarks to which management aspires.