Deciding in advance that how much finance is needed to carry out the functions of an enterprise is called financial planning.
Meaning of Financial Planning:
It is the process of determining finance for the Future. It focuses on determining that how an organization will achieve its financial aims. And financial manager investigates the Investment plans and selects the best one. Essentially, it helps in controlling the income, expenses, and investments that can manage your money and achieve organizational goals. Financial determination ensures:
- The requirements of funds whenever they needed.
- Financial Planning helps in controlling the wastage of funds.
- In reducing the risk of uncertainties like changing market trends.
- The benefits of long-term financial plans.
- Delivering the funds at the Right Time at the Right Place.
Importance of Financial Planning:
Forecasting for the future is required for the growth and success of any business. There are some reasons which explain its importance :
1. Prepared the firm to face the future:
Determining the finance helps to forecast the future under different situations. The finance manager has to prepare the blueprint of these circumstances so that manager should what to do in every situation.
2. Fixing the Most Appropriate Capital Structure:
Forecasting about finance is required for making appropriate sources at appropriate times. Generally, for the long term, the shareholders and debenture holders contribute to the business concern, accordingly, for the medium-term the financial institutions are helping, and for the short-term, the commercial banks fulfill the requirements.
3. Helps in Investing Finance in Right Projects:
It suggests that how the funds are to be allocated for various purposes by comparing various investment proposals.
4. The base for Financial Control:
Forecasting or planning of finance for future acts is a basis for evaluating the financial activities by comparing the actual revenue with estimated revenue and actual cost with an estimated cost.
5. Helps in Proper Utilisation of Finance:
Finance is the lifeblood of business. So forecasting finance is important for the corporate planning of the business. All business policies and plans depend upon the soundness of financial planning.
6. Helps in Avoiding Business Shocks and Surprises:
By fulfilling the financial requirements, financial planning helps to avoid shock or surprises which otherwise firms have to face adverse situations.
7. Helps in Coordination:
It helps in coordinating various business functions such as production, Marketing, sales function, etc. According to the requirements of each department, cash is used.
Advertisement-X
8. Links Present with Future:
Financial planning represents the actual financial requirements with future needs by the sales and growth plans of the company.
Thanks for reading the topic.
Please comment on your feedback whatever you want. If you have any questions, please ask us by commenting.
References: –
Also, Check our Tutorial on the following subjects: