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Financial Analytics: Science and Experience
 

An analysis of small businesses' capabilities to use financial planning methods: issues and solutions

Vol. 9, Iss. 27, JULY 2016

PDF  Article PDF Version

Received: 24 March 2016

Received in revised form: 14 June 2016

Accepted: 4 July 2016

Available online: 28 July 2016

Subject Heading: FINANCIAL INSTRUMENTS

JEL Classification: G30, M21, M29, O16

Pages: 13-25

Musienko S.O. Financial University under Government of Russian Federation, Moscow, Russian Federation
som090788@yandex.ru

Importance Financial planning is one of the crucial management functions, which determines financial stability of the entity. Effective financial planning is especially important for small businesses. In this respect, it is especially critical whether small businesses can apply elaborated theoretical methods for financial planning.
Objectives The research analyzes the main methods for financial planning and whether small enterprises can apply them. During the analysis, I identify the existence or absence of challenging issues for small businesses and propose possible solutions.
Methods Using theoretical methods of research, such as data synthesis and analysis, I evaluate various financial planning methods, identify their strengths and weaknesses when they are applied by small businesses. Using the method of algebraic transformations, I present a formula to calculate planned financial indicators.
Results As I have found out, the main financial planning methods are basically intended for large enterprises, rather than small businesses. As each financial planning method is implemented, small businesses come across certain difficulties. To address those challenging issues, I suggest using my own algorithm for applying the performance-based planning method, which implies a formula to calculate target indicators.
Conclusions and Relevance For purposes of effective financial planning, small businesses have to adapt the existing methods to specifics and possibilities of the segment in question. The performance-based method proves to be the most effective method of financial planning, especially considering the current macroeconomic situation. The proposed algorithm for performance-based planning turns out to be a versatile solution, which helps to facilitate and streamline the application of contemporary financial planning methods for small businesses.

Keywords: financial planning, small business, method

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