Financial Planning

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What is Financial Planning?

Financial Planning is one of the major planning that is required to be conducted by the management. Financial Planning includes all the activities which are related to the procurement of funds, investing those funds, and the return expected from the investment done. Financial Planning also ranges from tax planning which is an important activity. 

This planning is very important for a business to function, in this regard we have initiated the discussion on this topic ‘Financial Planning’ which is to be studied in greater detail. The scope of this topic is vast hence for a conceptualized study this is to be referred to. 

Financial Planning Meaning

Financial Planning is the process of estimating the capital requirement and also determining its competitive elements required for financial planning. This is a plan which has been defined as a document that contains a person's current money situation with the long-term monetary goals, the strategies to achieve those goals on the basis of the current fund. A financial plan may be devised and drafted independently or with the assistance of a financial planner. The first step in the creation of a financial plan is to involve collecting the numbers from the web-based accounts into a document or a spreadsheet. 

Financial Planning in Financial Management

A financial plan is an overall evaluation of an individual's current pay and future financial state by using the current known variables to predict the future income, asset values, and withdrawal plans. 

Financial Planning includes the budget which organizes the business and the individual finances and at times includes a series of steps or specific goals for spending and saving for the future. 

This plan distributes the future income to various types of expenses such as rent or utilities and also reserves some income for the short-term and long-term savings as well. A financial plan is sometimes referred to as an investment plan, while personal financing focuses on specific areas like risk management, estates, colleges, or retirement. 

Objectives of Financial Planning

The objectives of Financial Planning are enumerated as follows - 

  • To Ensure availability of Funds whenever required:

The foremost objective of financial planning is assuring the sufficient fund is available with the company for different purposes. 

  • To Check if the Firm raises the Resources Unnecessarily:

Excess funding is as bad as inadequate funds. If there is a surplus amount of money, then the financial planning is to invest it in the best possible manner as keeping financial resources idle is a great loss for an organization as it will be in vain.

Features of Financial Planning

Features of Financial Planning is enumerated as below - 

  • Simplicity:

A sound financial structure must provide a simple financial structure that could be managed easily and understandable even to a layman.

  • Foresight:

Foresight must be used in planning to know the estimate and the need for capital which may be estimated as accurately as possible. A plan visualized without any foresight will outcast disaster for the company.

  • Flexibility:

Repeating the financial adjustments becomes necessary hence its flexibility is required so that it is easily adaptable

  • Optimum use of Funds:

Capital should not only be adequate but should also employ productive effects. A financial plan should prevent wasteful use of the capital, thus avoiding idle capacity to ensure proper utilization of funds to earn the capacity in an enterprise.

  • Liquidity:

Current assets are to be kept in the form of liquid cash. Cash is also required to finance purchases, to pay the daily needs like paying salaries, wages, and other incidental expenses.

FAQ (Frequently Asked Questions)

Q1. Why is Financial Planning useful?

Ans. Finance is the lifeblood of a business, this is very crucial to any organization. Hence, utilizing finance without proper planning will be a fool’s act. The organizations force a special team for planning this fundamental factor. Planning involves estimating the future need of finance, its investment in key areas, and executing the return estimate – these activities are required to proceed on for adequate functioning. 

Q2. Who is a Financial Planner?

Ans. A financial planner or a personal financial planner is also a professional person who prepares financial plans for his clients. These financial plans often cover cash flow management, retirement planning, investment planning, financial risk management, insurance planning, tax planning, estate planning, and business succession planning which attracts both individual clients as well as business firms.

Q3. Why is ‘Investment Plan’ also known as ‘Financial Plan’?

Ans. An ‘investment plan’, precisely, is a part of ‘financial plan’ which means that in order to invest in a particular event or activity, the plan is to be devised to know the requirement of the fund needed in the investment, the return from the investment and its factors related. Thus, we see there is planning involved in its finance of the investment, hence, they can be used as synonyms to each other.  

4. Enumerate Principles on Financial Planning.

Ans. The Principles are –

  • Think long-term with goals and investing.

  • Spend less than you earn.

  • Maintain liquidity (emergency savings).

  • Minimize the use of debt.