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Importance of Financial Planning

Financial planning is a core to the main planning. It is an inseparable part of overall planning of enterprise. It plays important roles in an enterprise as it fixed financial objectives, formulates capital structure, raise funds and ensure proper utilization of funds. It is equally important for all types of organization whether it is small, big and medium size. Main benefits of financial planning are as follow:-

  1. The success of entire firm: - Every function of enterprise i.e. production, marketing, purchasing etc. all depends upon the financial function. The firm can avoid the possibilities of inadequate or excess capitalization which leads to wastage of resources.

  2. Economy and coordination: - financial planning minimizes the wastage in the complex operative process. Coordination is needed due to technological developments. Increased rate of interest, dividend is possible only through effective financial planning.

  3. The optimum capital structure at minimum cost: - financial planning helps in designing optimum capital structure. It ensures minimum cost at less risk while designing optimum capital structure. The financial manager makes the analysis of various sources of finance available to determine the sources which can be acquired at least cost.

  4. Conservation of capital: - financial planning ensures effective utilization of capital. It helps in conserving the value of an investment made in assets because as soon as new technology enters into the market old machinery becomes insolvent.

  5. Unity in action: - policy framed under financial planning guides the executives into action. In the absence of policy, executor may adopt different approaches meeting to the problem leading to confusion and tension.

  6. Ensure liquidity: - liquidity means making payments to creditors and other short-term obligation on time. Sound financial planning ensures liquidity by maintains a balance between inflow and outflow of funds.

  7. Better financial plan: - it helps in maintain complete control over the financial plan by keeping in the view the planned one.

  8. Ensure increased profitability: - Acquiring funds at the cheaper rate increase a number of profits. Financial is based upon the cost. Benefits analysis resulting in increased profitability.

  9. The basis of the business plan: - financial planning is required for all business plan. Financial planning ensures an availability of adequate finance. For successful implementation of every plan sound, financial planning is the must.

  10. Top management relaxed: - Effective financial plan communicated every little information to everyone concerned. Thus it relieves the burden of executors. They can concentrate on activities relating to expansion and diversification rather than routine matters.

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