Financial planning is the task of determining how an individual or business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision and objectives have been set.

Your financial plan should include three key financial statements: the income statement, the balance sheet and the cash flow statement. Let's look at what each statement is and why you need it. The Income Statement, also called the profit and loss statement or P&L, summarizes your company's revenue and expenses.

The financial planning process is a logical, six-step procedure:
(1) determining your current financial situation.
(2) developing financial goals.
(3) identifying alternative courses of action.
(4) evaluating alternatives.
(5) creating and implementing a financial action plan, and.
(6) reevaluating and revising the plan.

Creating a financial plan helps you see the big picture and set long and short-term life goals, a crucial step in mapping out your financial future. When you have a financial plan, it's easier to make financial decisions and stay on track to meet your goals.

Cash on hand is considered a liquid asset due to its ability to be readily accessed.
Cash Equivalents
Cash equivalents are typically investments that have short-term maturities of less than 90 days and are considered liquid assets because they can be readily converted to cash. Examples of cash equivalents include:

- Stocks and marketable securities are considered liquid assets because these assets can be converted to cash in a relatively short period of time in the event of a financial emergency.
- U.S. Treasuries and bonds.
- Mutual funds are a managed portfolio of investments where money from various investors is pooled and invested in a variety of different financial securities including stocks and bonds. Rather than purchase shares of an individual stock, investors buy shares of a mutual fund. However, these transactions are executed by the fund manager or through a broker, rather than on an open market. Mutual funds are considered liquid since investors can sell their shares at any time and receive their money within days.
- Money-market funds are a type of mutual fund that invests in low-risk low-yielding investments like municipal bonds. Similar to mutual funds, money market funds are also liquid investments.

Non-Liquid Assets
Non-liquid assets are assets that can be difficult to liquidate quickly. Examples are:

- Land and real estate investments are considered non-liquid assets because it can take months for a person or company to receive cash from the sale.
- For example, suppose a company owns real estate property and wants to liquidate because it has to pay off a debt obligation within a month. The process of selling the property may take longer than a month since it will take time to find an investor, negotiate and agree on a price, and to set up the closing for the sale. If the company wants to sell the property quickly, the property might sell for a lower price than its current market value, or it could sell for a loss to the owner. In this case, trying to liquidate a real estate investment can have a high impact on its value.

Pretax income, sometimes described as pretax dollars, is your gross income before income taxes are withheld.

Any contributions you make to a salary reduction retirement plan, such as a traditional 401(k) or 403(b) plan, or to a flexible spending account comes out of your pretax income.

The contribution reduces your current income and the amount you owe in current income taxes.

Capital gains or capital losses are the gains or losses that a company or an individual experiences on the sale of a capital asset. If the selling price of an asset is higher than the owner's basis in that asset, the result is a capital gain. If the selling price is less than the basis, the result is a capital loss. The basis is generally the purchase price of the asset plus any capital improvements and costs of sale.

Capital gains and losses are also experienced when a business writes off an asset, taking it off its balance sheet. This might be the case with accounts receivable when a debt is owed to the business but is unlikely to ever be paid for one reason or another.

Almost everything a business owns and uses is a capital asset.

When a capital asset is sold for a profit, a capital gain results. A capital loss results when a capital asset is sold at a loss.

Capital gains and losses come in two forms: long-term and short-term. Short-term gains or losses are those on assets that are held for a year or less before being sold. Long-term capital gains and losses result from the sale of assets that were held or owned for more than a year before being sold.

Long-term gains are subject to tax rates of 0, 15, or 20 percent in 2018 for sole proprietors and investors. The rate depends on the individual's overall income—the more income he has, the higher the rate. Short-term gains are taxed as ordinary income according to the individual's tax bracket. C-corporations have historically paid regular corporate income tax rates on all their capital gains.