Long-Term Financial Plan vs. Short-Term Financial Plan

Finance ManagementBanking & FinanceGrowth & Empowerment

Businesses often make short- and long-term goals that are defined by financial plans. Financial plans may be both short- and long-term depending on their tenure. Short-term plans are usually of a year or less while long-term plans have tenures of more than one year.

Both short- and long-term plans are inevitable for businesses. The businesses that make short- and long-term goals need to measure their performance by measuring the Key Performance Indicators (KPIs). Keeping track of the KPIs and successfully completing them is the key to success for firms.

Here, we define short and long-term financial planning, show their differences and express how they contain different facets of planning that make them stand apart from each other.

What is Short-Term Planning?

As mentioned above, short-term plans are short in nature, usually of a year or less and they have unique characteristics of the organization, such as cash flow. In business organizations, managers create plans on how to use and utilize the characteristics in order to reach long-term goals via these short-term factors in a step-by-step manner.

An example of a short-term goal would be to update the office equipment, such as furniture in the short-term, or repair or install computers for which deadlines are set by management in order to keep the firm running in good health.

Short-term planning may consider some special characteristics and include cash flow, budget, organization, savings on capital, investment in stock, communication, networking capabilities, daily routines, and attention to detail.

What is Long-Term Planning?

Long-term planning considers a long-term growth strategy and forecasts the success by factors that have the characteristics of running over a certain period of time. Long-term planning is more static than short-term plans that can be changed within a short while. In the case of long-term planning, the initial consensus taken while forming the decisions stops the plan from being flexible.

Long-term planning may include the facets, such as brand awareness of the products, sales, SEO, public reputation, number of employees, social and digital media presence, etc.

Key Differences Between Short- and Long-Term Planning

Many people confuse to realize the differences between short- and longterm financial planning. The key differences are as follows −

Evaluation of Present Condition vs. 4-5 years of Goals

Short-term planning evaluates the present condition or the present purpose of the firm in order to perform the best. The changes in short-term planning may be made daily and the management usually checks and tweaks the plans on a regular basis on a daily, weekly, or monthly basis.

The long-term plan is meant for a goal of four to five years. The short-term plans are used to reach the long-term plan of the organization. That is why short-term plans are extremely dynamic while long-term plans are static in nature.

Scope of Short- and Long-Term Planning

Another difference between short and long-term planning lies in their scope. The short-term goals are usually connected to long-term counterparts. So, the short-term goals are created in such a way that the long-term goals are achieved in a holistic manner. The management usually looks for the present solutions so that the company runs and reaches long-term goals smoothly.

Process of Execution of Short- and Long-Term Plans

The other difference between short and long-term planning lies in the process of execution of the plans. Usually, short-term plans are executed in a timely manner to reach a long-term plan. It is a direct outcome of the above mentioned factors.

Long-term planning will be futile if a company fails to meet the present plans fruitfully.

For example, if a company aims to increase its sales 50 times in five years, it must add sales by 10 times the present every year. Here, 50 times the sale is a long-term plan while adding 10 times that of present sales is a short-term plan.

raja
Updated on 30-May-2022 11:51:56

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