Introduction And Meaning Of Financial Planning
Financial planning is a process of projecting future financial requirements and framing the financial policies in order to achieve corporate goals and objectives. It is a function of management that estimates the capital requirement, determines the capital structure, determines the sources of funds provides guidance to utilize financial resources properly. Financial planning helps to meet company's short-term and long-term goals effectively.
Objectives Of Financial Planning
The main importance or objectives of financial planning can be highlighted as follows:
1. Projecting The Future Capital Requirement
Financial planning helps to determine the actual amount of capital required to carryout business activities. It estimates both short-term and long-term requirement of fund for the business firm.
2. To Determine Capital Structure
After estimating the required fund, financial planning helps to determine the capital structure of the firm. Capital structure includes both internal and external sources of financing such as equity shares, loan, debenture etc. It helps to determine suitable capital structure according to the nature and size of the business.
3. To Ensure Adequate Capital
Another objective of financial planning is that it helps to make proper balance between funds inflow and outflow that avoids over or under generating of fund. It helps to maintain optimum level of capital in the company that ensures smooth operations.
4. To Minimize Risk
It guides the management to make investment wisely in right and profitable projects that helps to minimize the risk and uncertainty.
5. Optimum Utilization Of Resources
Financial planning provides guidance to utilize financial resources properly to increase operational efficiency so the firm can achieve its goals and objectives easily.
6. To Maximize Profit
Because of proper planning, adequate capital and effective use of resources, it helps to increase the productivity of the firm. Increased productivity leads to increase the profit of the company
