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Financial Planning


What is Financial Planning?

Financial Planning is an ongoing process to help you make sensible decisions about money that can help you achieve your goals in life; it's not just about buying products like a pension or an ISA.

It might involve putting appropriate wills in place to protect your family, thinking about how your family will manage without your income should you fall ill or die prematurely, spending money differently, but it involves thinking about all of these things together i.e. your 'plan'. You can build a plan on your own, or if your needs are more complex you might want the help of a Financial Planner.

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.
  • 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.
  • Framing financial policies with regards to cash control, lending, borrowings, etc.

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 an d profitability in concern.