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 the preparation of financial blueprint, which foresees entire fund requirement in respect to quantum as well as the timing. It is the process of estimating the fund requirements of business and specifying the sources of funds. It involves the preparation of a financial blue print of an organisation’s future operations. The objective of financial planning is to ensure that enough funds are available at right time.

Financial planning is essential in financial management because: (Any two)

(i) Helps in avoiding business shocks and surprises: Proper provision regarding shortage or surplus of funds is made by anticipating future receipts and payments. Hence, it helps in avoiding business shocks and surprises.

(ii) Helps in avoiding wastage of finance: In the absence of financial planning, wastage of financial resources may take place. This arises due to the complex nature of business operations such as, excessively over or under estimation of finance for a particular business operation. such type of wastages can be avoided through financial planning.

(iii) Helps in coordination: It helps in coordinating various business activities, such as sales, purchase, – production, finance, etc.