Financial Planning – Importance and Objectives

Financial Planning encompasses all processes which apply general management guidelines in the management of the finance of an organization, including planning the organization, directing and acquiring money, and investing and return of funds. Students will be taught about the purpose, meaning, and features of the financial plan.

 

Financial Planning is among the primary planning processes necessary to be executed by the top management. Financial Planning covers all actions related to the purchase of funds, investing in the funds, and the returns expected from investments. Financial Planning can also include tax planning, which is an essential task.

 

Planning is crucial for the success of a business, and in this respect, we’ve started a discussion on the topic of Financial Planning, which needs to be explored in greater depth. The subject is vast. Therefore, to conduct a conceptual study, this should be studied.

Definition of Financial Planning

Financial Planning can be described as an account containing the details of a business’s owner’s or company’s financial position and a strategy for spending funds to accomplish a particular target through an effective plan. Financial Planning can be developed in-house or by a skilled planner.

 

It’s essentially the financial budget that assists in organizing the business. It also includes the set of objectives to be adhered to by the business or the business owner to save and spend the funds accordingly. It can help distribute financial expenses like rent while saving a portion of money in the long or short term.

 

Financial Planning is the method of estimating the required capital and, in addition, determining the competitive Parts necessary to plan financial plans. It’s a plan defined as a written document describing a person’s current financial situation along with long-term financial goals and strategies for achieving these goals based on the resources of the current funds. A financial plan can be formulated and written on its own or with the help of an expert financial planner. The initial step in preparing a financial strategy involves putting the data from internet-based accounts and putting them into a document or spreadsheet.

 

This kind of plan is often referred to as an investment plan since it can manage various liquid assets and other types subject to uncertainty and risk. Individual financial Planning isn’t as risky since it does not require a large amount of investment or undertaking like funds that are kept in separate accounts for university or college, healthcare, estates, or retirement.

 

Financial Planning in Financial Management

Financial plans are a review of a person’s current salary and financial situation through the use of current variables to forecast the future amount of income, asset value, and withdrawal strategies. Financial Planning is a part of the budget that organizes financial affairs of the business and personal financial affairs and may include the steps or goals specific to savings and spending for the future. The plan allocates future earnings to different expenses like utility bills or rent and saves some of the income for savings in the short and long term. A financial plan can be called an investment plan, whereas personal financing is focused on certain areas such as estate planning, risk management, retirement, or college.

Financial Planning Objectives

There are two primary goals for financial Planning, which are described in the following paragraphs:

• Ensuring that the funds are readily available when Needed: The first and primary goal for financial management is to ensure that the funds are readily available in the event of an emergency or at any time to use. The funds must be readily available at the firm for various reasons.
• Beware of unneeded fundraising by Firms: Lack of funds is just as damaging as surplus funds. Inactive funds will cause a loss to the company, as opposed to investing. So, an efficient allocation of funds is a crucial aspect of financial management.

The Objectives of Financial Planning are Enumerated as Follows 

• To Ensure the Availability of Funds Whenever Required:

The main goal of financial management is to ensure that there is enough money at the disposal of the business to meet various needs.

• To Check if the Firm Raises the Resources Unnecessarily:

Excess funding can be as detrimental as insufficient funds. If there is an excess amount of cash, the best financial plan is to put it in the best way possible since the inactivity of financial resources is a huge loss for an organization since it would go to waste.

Financial Planning Features

Many Parts associated with financial Planning are essential for individuals and businesses. The following are the most important:

• Planning for the future without considering the consequences will cause a catastrophe. Planning with foresight is essential to estimate risks and the need for liquid assets and others. It might not be 100% accurate, but it ought to be able to estimate the risk that will come in the near future.
• Flexible: Any plan must be flexible because it can help make adjustments to meet the demands of the future.
• Best Use of Funds Financial plans should be able to use inactive assets and money to be productive in the near future. It doesn’t require money that is set aside for unforeseeable events but assets that can be employed.
• Simple: Financial Planning must be straightforward in structure and be able to make an effective resource allocation that even the layman easily understands.
• Liquidity is an important Part of financial planning that involves maintaining current assets in the form of money. This helps in the easy payments and allocation of various expenses like salaries, fees, and other kinds.

 

The main features of Financial Planning are listed below

• Simplicity: A well-designed financial structure should be a simple financial framework that is manageable and comprehendible even for an untrained person.
• Foresight: The concept of foresight has to be utilized in planning to determine the estimated amount of capital requirements which can be estimated accurately. An unplanned plan not accompanied by prior foresight can lead to a disaster for the company.
• Flexibility Repetition of financial adjustments is necessary, so it is necessary to be flexible so that it can be easily adaptable
• The best use of funds Capital must not just be adequate, but it should also be productive in its use. A financial plan must prevent excessive use of capital, thereby eliminating idle capacity and ensuring that funds are utilized properly to increase capacity within an organization.
• Liquid assets: These assets need to be stored in liquid cash. Cash is also needed to finance purchases and meet the necessities of daily life, such as paying wages, salaries, and other incidental costs.

Conclusion

Financial Planning is an Important part of the personal and business worlds. This article will give you an understanding of the financial planning process and its most important Part.it helps you be in control of your income, expenses and investments such that you can manage your money and achieve your goals.