What is planned investment and necessary tips for the investment planning in the business

What is planned investment and necessary tips for the investment planning in the business

Whether you have a small business or a big company, the strategies to play the game of investment will never die out in your field. This is why you get introduced to the terms—planned, actual, and unplanned investments. These simple terms state what they sound like, but this doesn’t mean you can’t dig a little deeper to learn more about them. Walk through this post to get packed with knowledge about the terms and how they relate to each other. And most importantly, how are these important for your business?

What is the planned investment?

Planned investment, as the word sounds, is exactly what it is. In a simple way, planned investment relates to the expenditure to be made in a company or business for a particular period of time. The time for which investment is planned is most commonly a fiscal year. The planning happens at the beginning of the year. 

To make the whole situation clear, let’s take the example of a warehouse business. An owner plans to invest $150,000 for a whole year. This amount of money will be invested in subsequent periods of time as the month passes. And the investments may include stocked products or capital goods for the warehouse.

A planned investment is like the consumption of expenses that’ll be done throughout a specific period of time.

Actual investment vs. planned investment

The planned investment and actual investment describe themselves exactly as their names state. Planned investment isn’t proper in a practical manner. This means things might not go as planned for a company. This is where actual investment comes in. These are the investments that the company actually invests in over the original period of time. An actual investment goes into the current portfolio of an investor or a company.

Planned investmentActual investment
Planned investments are the investment that a company plans to do in a specific amount of time (mostly a year).Actual investments are that actually happen in the company.
These are predicted in the beginning of the time period.These are concluded at the end of the period.
Planned investments don’t consider any inventory changes.Actual investments consider inventory changes based on practical circumstances. 

For example, if a company plans to invest $11,000 in a machine to make toys and plans to produce 10,000 toys in a year to sell them at a cost of $200, and takes in 2000 toys in inventory, then, the planned cost will be;

New machinery                                                          $11000

Plans for inventory investment 2000 toys X $200 = $400,000

Total planned investment                                         $ 411,000

And if the actual pieces sold by the end of the year might be 6,000 toys, then the toys that go into the inventory will be 4,000 in number.

So, the actual investment of the company is

New machinery                                                        $11,000

Actual inventory investment   4000 toys X $200     $ 800,000

Total actual investment                                           $8,11,000

Therefore, this mismatch in the investment results in the misestimation of a company.

Unplanned investment

Unplanned investments happen when there are any changes in inventories. As the name says it all, these expenditures by the company are the surprises that come along the way when there is some change in the business plan. 

Normally, a company builds a planned investment based on the economic conditions that are predictable, such as interest rates, sales, and profitability. However, unplanned investments don’t come into this already expected financial situation of the company. They happen when a business makes more or less sales than expected.

There are negative and positive unplanned investments, and both affect a company in a profitable or non-profitable way. 

Relation between planned, actual, and unplanned investments

When planned and actual investments don’t match, the macroeconomic equilibrium between the two gets disturbed. And unplanned investments are the ones that are responsible for this perturbed equilibrium.

The planned, actual, and unplanned investments are correlated with each other with a simple equation. This is that an actual investment equals the sum of planned equilibrium and unplanned equilibrium.

Actual investment = planned investment + unplanned investment.

Unplanned investment is the reason for the change in macroeconomic equilibrium between actual and planned investment.

Factors that planned investments depend on

A company plans the expenditure of a year by analyzing certain factors that can make a strong strategy for planned investments. The following factors influence the planned investments: interest rate, sales, expected future, and production capacity.

Interest rate: A company plans to estimate its investments by studying the higher and lower interest rates of the assets they’re investing in.

Sales: If a company wants to increase its sales, then it’ll have to produce more. This means a company has to have planned expenditure for the same. However, if the previous year’s sales didn’t do well, the company may choose to cut short the expenditure.

Production capacity: The more a company tends to produce, the more money it’ll be likely to invest in the manufacturing unit.

Tips for an investment plan

Before going through any of the investments, it’s critically important to study what you need and how you need them. Therefore, you should know some tips that can headstart your journey to better investments. If you’re investing your money in a business, make sure you start strong.

Be organized

When talking about money, it is easy to let go of the boring paperwork and lose track of the spending. Be organized in your investment plan. You need to have a keen eye on the cash flow of your expenses and income. Be mindful of how you spend on assets and liabilities. If you own a business, spending on liabilities will exhaust all your savings and burn out your business plan.

Effective planning

It’s important to plan where your money goes, especially in a business. This is why most companies like to have a planned investment in their portfolios. Create a plan for how much money to use and how much to save. Try to have a balance because playing all the cards, in the beginning, can end your business game even before you start it. 

It is important that you make a realistic plan for your business. If you’re just getting started, avoid the temptation of spending everything at once. Remember, you can’t build a skyscraper on six-inch concrete.

Research

Better research for where to invest will always earn extra bucks. You can invest in bonds, stocks, and even digital currency. But all of these demand thorough research. After all, it’s a matter of money. If you feel like it is too much for you to gulp, go for more professional advice.

Save and invest

If you’re a master of savings, then it is time that you make use of that quality. Give that pile of money in your account a motive. Invest it in assets that can double your income and make you rich. For investment, you can start a business, invest in stocks or real estate, whatever suits your interest. Go for it. But, before you enter the investment world, make sure you’ve done your homework. Lastly, get expert advice on which assets to invest in.

Takeaway

Investments are the most crucial part of any business, and the terms – planned, unplanned, and actual investments – play their part in determining the success or revenue of a business. To have a strong foothold in investment plans, these terms will tell you where your company stands in the current market.

Investing in a business with the proper mindset and strategy makes it grow exponentially. And this is the reason that you need to follow tips and tricks for investment plans that are realistic and work best for you.

Frequently asked questions

What is the reason for unplanned investments?

Unplanned investments happen when a business makes more or fewer sales than it didn’t expect. This change in sales causes a change in inventories. So, businesses have to make some changes to their investment plans according to the current situation of their trade. These changes in investment planning result in unplanned investments. 

How is planned investment different from unplanned investment?

A planned investment is when a company sets out an organized plan for an expenditure that’ll happen for a certain period. This type of expenditure is what a company expects to happen.

Unplanned investments are the element of surprise that occurs when there are changes in the inventory. A company doesn’t plan this kind of expenditure but has to deal with it under the current circumstances.

Post Comment