Financial planning

Financial PlanningGuided By: Gouri Mam

Presented By: Ankit.Porwal

• 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

• 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

• “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

1. Adequate funds2. Minimize the cost economy3. Matches of costs and risks4. Flexibility 5. Simplicity6. Long term period 7. Optimum use

Objectives of Financial Planning

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.

5. Simplicity:The financial plan should be simple

. There by it canunderstood easily.

6. 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 thatfunds should not be insufficient or used lavishly

1. Simplicity2. Foresight3. Flexibility4. Liquidity5. Provision for contingencies6. Economy7. Intensive use of capital8. Period9. Solvency

Characteristics of Financial Plan

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.

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.

7. Intensive use of capital (optimum use ):Effective utilization of capital is an

important principle offinancial plan. They have to maintain equilibrium

of balance inworking and fixed capital.

8. 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.

1. Nature of the industry2. Goodwill of the enterprise3. Future plans4. Availability of source5. General economic conditions6. Government control

Factors Affecting Financial Plan

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.

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.

1. Establishing Financial Objectivesi. Long term objectives.

ii. Short term objectives.

2. Formulating financial policies3. Formulating financial procedures4. Providing flexibility

Steps in Financial Plan

1. Difficulty in forecasting2. Difficulty in change3. Lack of co-ordination4. Changes in economic conditions and government

policies

Limitations of financial Plan

1. Better promotion2. Better direction3. Better conservation of capital4. More liquidity5. Better expansion and development6. Better unit co-ordination

Importance of Financial Plan

Thank You..