Question

What is meant by 'Financial Planning'?

Explain any five points which highlights its importance.

Answer 1

Financial planning is the process of estimating the fund requirements, specifying the sources of funds and utilising them in an optimum manner. Financial planning is basically concerned with preparation of financial blueprint of an organisation's future operations.

Importance of financial planning is as follows:

(a) It helps the company to prepare for the future.

(b) It helps in avoiding business shocks and surprises.

(c) It helps in co-ordinating various business functions.

(d) It helps in reducing waste, duplication of efforts, gaps in planning and confusion.

(e) It links the present with the future.

(f) It provides a link between investment and financing decisions.

(g) It serves as a control technique.