Question

'Financial planning tries to link the present with the future'. Explain the importance of financial planning in the light of this statement.

Answer 1

Financial planning is an integral part of the overall planning of any business organisation. It is the process of determining the objectives, policies, procedures, programmes and budgets to deal with the corporate financial activities of an enterprise.

Sound financial planning is essential for the success of a business enterprise because of the following points:
(i) It helps in forecasting what may happen in the future under different business situations.
(ii) It helps in avoiding business shocks and surprises and helps the company in preparing for the future.
(iii) It helps in coordinating various business functions.
(iv) It tries to link the present with the future.
(v) It provides a link between investment and financing decisions continuously.
(vi) It helps in reducing waste, duplication of efforts and gaps in planning.
(vii) It acts as the basis of control by spelling out the objectives of various business segments.