What is Financial Planning? Why is it important?
In this post, we will learn the concept of financial planning, its objectives, and its importance.
Concept of Financial Planning
It means deciding in advance how much to spend and what to spend according to the funds available.
Objective of Financial Planning
Financial planning is done to achieve the following two objectives:
1. To ensure availability of funds, whenever these are required
The main objective of financial planning is that sufficient funds should be available in the company for different purposes such as for the purchase of long-term assets. It also ensures the timely availability of finance.
2. To see that firm does not raise resources unnecessarily
Excess funding is as bad as inadequate or shortage of funds. If there is surplus money, then according to financial planning one must invest it in the best possible manner as keeping financial resources idle is a great loss for an organization.
Importance of financial planning
Sound financial planning is essential for the success of any business enterprise. Its need is felt because of the following reasons:
- It facilitates collection of optimum funds
- It helps in fixing the most appropriate capital structure, like short term could be banks, medium term could be financial institutions.
- Helps in investing finance in right project. Depending on company investment proposal.
- Helps in operational activities
- Base for financial control
- Helps in proper utilization of funds
- Helps in avoiding business shocks and surprises
- Link between investment and financial decisions- Helps in deciding Debt to Equity ratio
- Helps in coordination
- It links present with future
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