Financial planning
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Financial planning is the process of determining how a business will afford to achieve its strategic goals and objectives. It involves assessing the business environment, confirming objectives and identifying resource needs, quantifying resources, calculating costs, and creating a budget. Financial planning is critical for an organization's success as it provides a rigorous financial confirmation that objectives are achievable and helps set financial targets and reward staff.
Financial planning
- 1. Financial Planning Financial Planning is the process of estimating the capital required and determining its competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise. Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision and objectives have been set. The Financial Plan describes each of the activities, resources, equipment and materials that are needed to achieve these objectives, as well as the time frames involved. The Financial Planning activity involves the following tasks; ---- Assess the business environment Confirm the business vision and objectives Identify the types of resources needed to achieve these objectives Quantify the amount of resource (labour, equipment, materials) Calculate the total cost of each type of resource Summarize the costs to create a budget Identify any risks and issues with the budget set Performing Financial Planning is critical to the success of any organization. It provides the Business Plan with rigor, by confirming that the objectives set are achievable from a financial point of view. It also helps the CEO to set financial targets for the organization, and reward staff for meeting objectives within the budget set. 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.
- 2. 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 and profitability in concern.