Financial policy formation: principles for hospitals.

Strategic planning cannot be performed in a vacuum. Effective strategic planning requires the development of corporate financial policies and realistic financial plans. The financial plan should spell out precisely how the total investment needs required to make the strategic plan realizable will be financed. The two major categories of funding are debt and equity. Every business should formally establish targets for both debt and equity accumulation. Failure to achieve targeted values for debt and equity growth will require a reconsideration of the strategic plan and a redefinition of approved programs. Effective business planning requires a review and updating of a five year financial plan annually.