2. • Planning is pre-determined course of action to achieve or
demanding or incorporating desired objectives.
• Planning is a mutual process requiring the use of intellectual
facilities, foresight and sound judgment.
Planning
3. • Financial planning means deciding well in advance how much fund
is required for a particular business. Afterwards deciding from
which source the funds are to be collected and profitable
utilization of such funds.
• Financial Planning is the task of deciding in advance how much
capital is required and the pattern of financing
Meaning Of Financial Planning
4. • “Financial planning pertains only to the function of financial and
includes the determination of the firms financial objectives
formulating and promulgating financial policies and developing
financial procedures” –By Walkar and Boughn
Definition of Financial Planning
5. 1. Adequate funds
2. Minimize the cost economy
3. Matches of costs and risks
4. Flexibility
5. Simplicity
6. Long term period
7. Optimum use
Objectives of Financial Planning
6. 1. Adequate Funds:
Financial plan should assure the availability of sufficient
funds in order to achieve the goals of the enterprise.
2. Minimise the cost economy:
The cost of collecting funds should be minimum it should
not be a burden.
3. Matching of costs and risks:
It involved in raising the funds in order to protect the
interest of the owner.
4. Flexibility:
Financial plan should be flexible so that the financial
structure may be adjusted as per the changing condition.
7. 5. Simplicity:
The financial plan should be simple . There by it can
understood easily.
5. Long term period:
The needs for funds in the near future and over a longer
period should be considered while selecting the pattern of
financing.
7. Optimum use:
Financial Plans should be prepared in such a manner that
funds should not be insufficient or used lavishly
8. 1. Simplicity
2. Foresight
3. Flexibility
4. Liquidity
5. Provision for contingencies
6. Economy
7. Intensive use of capital
8. Period
9. Solvency
Characteristics of Financial Plan
9. 1. Simplicity:
Simplicity of financial plan helps the management in
procuring the necessary capital.
2. Foresight:
While preparing the financial plan, the planners should
take into consideration the present and future requirements of funds
to the organization. In order to arrive at a sound financial plan, the
promoters use foresight in predicting the short-term & long term
financial need of company.
3. Flexibility:
The flexibility in the financial plan helps the company to
introduce necessary change to it, according to the changing business
situation.
10. 4. Liquidity:
For smooth running of an organization a reconsonable
percentage of current assets should be kept in the form of required
cash. While preparing company’s financial plan, it is necessary to pay
proper attention to the liquidity requirements of a firm.
5. Provision for contingencies:
A good financial plan has to provide adequate amount or
provision for future contingencies (changes)
6. Economical:
The cost of sources of capital collected should be
minimum or economical. The cost of capital raised should not be a
burden on the company.
11. 7. Intensive use of capital (optimum use ):
Effective utilization of capital is an important principle of
financial plan. They have to maintain equilibrium of balance in
working and fixed capital.
7. Period of finance:
Usually long term should be raised by the issue of equity
shares.
9. Solvency:
solvency requires that short-term & long-term payments
should be made on dates when they are due. This will increase the
goodwill of enterprise. Solvency will be possible when liquidity of
assets is maintained.
12. 1. Nature of the industry
2. Goodwill of the enterprise
3. Future plans
4. Availability of source
5. General economic conditions
6. Government control
Factors Affecting Financial Plan
13. 1. Nature of industry:
The various industries require the funds foe different
purpose. While preparing financial plan, variable factors affect the
size & structure of financial requirements. Hence FP is directly
related to nature of industry.
2. Goodwill of the enterprise:
Large sized & old industries with established goodwill do
not face difficulty in raising the required amount of capital. But
newly established industries face a lot of difficulties in raising the
required amount of capital.
3. Future plans:
While preparing financial plans, plans for expansion &
diversification in future are to be taken into consideration. Expansion
in future is require flexible financial plan. The sources of fund will be
provided without difficulty.
14. 4. Availability of sources:
While preparing FP, another affecting factor is
availability of sources of funds, because different sources of funds are
available.
5. General economic conditions:
The existing economic condition at the national level
will also affect while preparing financial plan.
6. Government control:
Government policies relating to the issue of shares,
debentures, distribution of dividend, rate of interest and industrial
policy of government are important factors to be taken into
consideration while formulating the financial plan.
15. 1. Establishing Financial Objectives
i. Long term objectives.
ii. Short term objectives.
2. Formulating financial policies
3. Formulating financial procedures
4. Providing flexibility
Steps in Financial Plan
16. 1. Difficulty in forecasting
2. Difficulty in change
3. Lack of co-ordination
4. Changes in economic conditions and government policies
Limitations of financial Plan
17. 1. Better promotion
2. Better direction
3. Better conservation of capital
4. More liquidity
5. Better expansion and development
6. Better unit co-ordination
Importance of Financial Plan
