WHAT IS FINANCIAL PLANNING & BEST 10 IMPORTANCE OF FINANCIAL PLANNING?

WHAT IS FINANCIAL PLANNING?

Financial planning means deciding in advance how much to spend, on what to spend according to the funds at your disposal.

In the words of Gerestenbug financial planning includes:

1. Determination of amount of Finance needed by an enterprise to carry out its operations smoothly.

2. Determination of source of funds ,i.e ,the pattern of securities to be issued.

3. Determination of suitable policies for proper utilisation and administration of funds.

Importance of financial planning

1. It facilitates collection of optimum funds.

The financial planning estimate the exercise equipment of funds which means to avoid wastage and over capitalisation situation.

2. It help in fixing the most appropriate capital structure

Funds can be arranged from various sources and are used for long term, medium term and short term. Financial planning is necessary for tapping appropriate sources at appropriate time as long term funds are generally contributed by shareholders and debenture holder, medium term by financial Institutions and short term by commercial banks.

3. Help in investing Finance in right project.

Financial plan suggest how the fund are to be allocated for various purpose by comparing various investment proposals.

4. Help in operational activities.

The success or failure of production and distribution function of business depends upon the financial decision as right decision ensure smooth flow of finance and smooth operation of production and distribution.

5. Base for financial control.

Financial planning act as a basis for checking the financial activity by comparing the actual revenue with estimate revenue and actual cost with estimate cost.

6. Help in proper utilisation of finance.

Finance is the lifeblood of business so financial planning is a integral part of the corporate planning of business. All business plan depend upon the soundness of financial planning.

7. Help in avoiding business shocks and surprises.

By anticipating the financial recruitments, financial planning help to avoid shock and surprises which otherwise form have to face in uncertain situations.

8. Link between investment and financing decision.

Financial Planning helps in deciding debt or equity ratio and by deciding where to invest this fund it create a link between both the decisions.

9. Help in coordination.

It help in coordinating various business functions such as production, sales function etc.

10. It links present with future.

Financial planning relates present financial recruitment with future recruitment by anticipating the sales and growth plan of the company.

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