Definition of Financial Planning
Financial Planning is the process of estimating the capital required
and determining it’s competition. It is the process of framing financial
policies in relation to procurement, investment and administration of
funds of an enterprise.
Objectives of Financial Planning
Financial Planning has got many objectives to look forward to:
- Determining capital requirements- This will depend upon factors like
cost of current and fixed assets, promotional expenses and long- range
planning. Capital requirements have to be looked with both aspects:
short- term and long- term requirements.
- Determining capital structure- The capital structure is the
composition of capital, i.e., the relative kind and proportion of
capital required in the business. This includes decisions of debt-
equity ratio- both short-term and long- term.
- Framing financial policies with regards to cash control, lending, borrowings, etc.
- A finance manager ensures that the scarce financial resources
are maximally utilized in the best possible manner at least cost in
order to get maximum returns on investment.
Importance of Financial Planning
Financial Planning is process of framing objectives, policies,
procedures, programmes and budgets regarding the financial activities of
a concern. This ensures effective and adequate financial and investment
policies. The importance can be outlined as-
- Adequate funds have to be ensured.
- Financial Planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained.
- Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial planning.
- Financial Planning helps in making growth and expansion programmes which helps in long-run survival of the company.
- Financial Planning reduces uncertainties with regards to changing market trends which can be faced easily through enough funds.
- Financial Planning helps in reducing the uncertainties which
can be a hindrance to growth of the company. This helps in ensuring
stability an d profitability in concern.
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