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Financial Planning

Financial planning is an important part of financial management. It is process of determining the objectives policies, procedures, programmers and budgets to deal with the financial activities of an enterprise.

Financial planning reflects the needs of the business and is integrated with the overall business planning. Proper financial planning is necessary to enable the business enterprise to have right amount of capital to continue its operations efficiently. Financial panning involves taking certain important decision so that funds are continuously available to the company and are used efficiently. These decision highlight the scope of financial planning.

The objectives of financial planning are as follows:
(i)    To determine the amount of capital required by enterprise;
(ii)    To design proper, suitable, flexible and effective capital structure; and
(iii)    To lay down the financial policies related to lending, borrowing, control f cash etc.

Role of Financial Planning

The important benefits of financial planning to a business are discussed below:

(i)    Financial planning provides policies and procedures for the sound administration of the finance function.

(ii)    Financial planning results in preparation of plans for the future. Thus, new projects could be undertaken smoothly.

(iii)    Financial planning ensures required funds from various sources for the smooth conduct of business.

(iv)    Uncertainty about the availability of funds is reduced. It ensures stability of business operations.

(v)    Financial planning attempts to achieve a balance between the inflow and outflow of funds. Adequate liquidity is ensured throughout the year. This will increase the reputation of the company.

(vi)    Cost of financing is kept to the minimum possible and scarce financial resources are used judiciously.

(vii)    Financial planning serves as the basis of financial control. The management attempts to ensure utilization of funds in tune with the financial plans.

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