2. MEANING OF F.P.
Financial planning is an important function of
financial management. This function has to be
performed whether the business is big or small.
Similarly , a new as well as an existing business must
perform this function very carefully because it is
concerned with the procurement and effective
utilization of funds. A carefully prepared financial plan
will not only ensure the economical and sufficient
procurement of funds but their proper utilization also.
3. DEFINITION
“Financial planning pertains to the function of finance
and includes the determination of the firms’ financial
objectives, financial policies and financial procedures.”
-Walker and baughn
4. Objectives of Financial planning
To raise the funds in a manner that the cost of capital
is minimum.
To ensure simplicity in the capital structure.
To ensure sufficient liquidity of funds.
To provide adequate funds to the business. Neither the
funds should be short nor in excess of the needs of the
business.
To ensure flexibility in capital structure so that
changes in the sources of funds may be made
according to the changing conditions.
5. Types of Financial planning
Short term planning
Medium term Financial planning
Long term financial planning
6. Steps in financial planning
Determination of financial objectives
Formulation of financial policies
Formulation of procedures
Provision of Flexibility
7. Principal of a sound Financial
Planning
A financial plan should be so simple that it may be
easily understood by everyone. It should have a simple
capital structure capable of being manage easily.
The financial plan should prepared keeping in view
the future needs of business.
An ideal financial plan should always aim at the best
possible and intensive use of all available resources of
finance.
Financial plan must be prepared in such a way that
cost of capital is minimum.
8. Conti…..
A financial plan should be sufficiently flexible. It
should be possible for a company to change its
financial plan with minimum cost and delay it
warranted by changed circumstances.
A Financial plan should keep in view the requirement
of funds for contingencies. Contingencies means the
requirement of funds for unseen events.
9. Factors Affecting Financial Planning
Nature Of Business
Degree of Risk
Standing of the concern
Plans for future growth
Alternative source of management
Atitude of management
Government policies and control
10. Significance of financial planning
Helpful in the efficient operation of business activities.
Helpful in proper capitalization
Helpful in optimum capital structure
Helpful in proper utilization of funds
Helpful in the expansion of the business
11. Limitations of Financial Planning
Financial plan is based on forecast of future
conditions.
Once a financial plan is prepared, it becomes quite
difficult to change it.
Assets involving huge capital might have been
purchased and raw material, labor and other costs
might have been incurred.
Sometimes the changes in financial plan also becomes
difficult due to rigid attitude of management.