Question

"Sound Financial Planning' is essential for the success of any business enterprise."

Explain this statement by giving any six reasons.

Answer 1

Financial Planning pertains functions of finance and include determination of firm financial objective,financial policies and financial procedure.

Main six points of importance of sound financial planning for success of business enterprise are given below

(i) Helps to face the eventualities: It forecasts the future business situations which helps in preparing alternative financial plans to face the eventual situations.

• (ii) 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.
  (iii) Helps in coordination: It helps in coordinating various business activities, such as sales, purchase, production, finance, etc.
  (iv) 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.
  (v)Helps to link the present with the future: It makes efforts to link the present with the future. By doing so, it helps to minimise the risks of future uncertainties.
  (vi)Helps in creating link between investment and financing decisions: It helps in deciding that where the to invest and from where the required funds will be made available. Under it, the mix of share capital and debt capital is made in such a manner that cost of capital is reduced to minimum.