Financial Planning – Definition, Objectives and Importance

Financial Planning – Definition, Objectives and Importance

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Financial Planning – Definition, Objectives, and Importance

Definition of Financial Planning

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Financial planning is the process of predicting the amount of money needed and choosing who will compete for it. It is the process of developing financial policies for an enterprise’s purchase, investment, and management of finances.
 

 

Objectives of Financial Planning

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Financial Planning has got many objectives to look forward to:

a. Capital requirements- This will be determined by criteria such as the cost of current and fixed assets, promotional costs, and long-term planning. Capital requirements must be considered from both short- and long-term perspectives.

b. Capital structure determination– The capital structure is the composition of capital, i.e., the relative sort and proportion of capital required in the firm. This encompasses both short-term and long-term debt-equity ratio considerations.

c. Developing financial policies for cash management, lending, borrowing, and so on.

d. A finance manager ensures that finite financial resources are used as efficiently as feasible and at the lowest possible cost in order to maximize returns on investment.

 

Importance of Financial Planning

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Financial planning is the process of developing objectives, rules, procedures, programs, and budgets for a company’s financial activities. This guarantees that financial and investment policies are effective and appropriate. The significance can be summarized as follows: 
 
 
1. Adequate money must be guaranteed.
 
2. Financial planning aids in keeping a healthy balance between outflow and inflow of cash in order to preserve stability.
 
3. Financial planning means that money suppliers may readily invest in organizations that use financial planning.
 
4. Financial planning aids in the development of growth and expansion plans, which aid in the long-term viability of the organization.
 
5. Financial planning decreases risks associated with shifting market patterns, which may be readily addressed with adequate finances.
 
6. Financial planning aids in the reduction of uncertainty.

 

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