Importance of Financial Planning

Financial planning is essential for tackling uncertainty of funds and ensuring smooth functioning and survival of business.

• Helps forecast future: Predicts future situations and prepares alternative financial plans for different assumptions (like various sales growth rates).
• Helps avoid business shocks and surprises: Reduces unexpected problems and prepares the company for future conditions to ensure smooth functioning.
• Helps in coordinating various business functions: Links sales forecasts and production plans and uses policies, procedures and budgets to coordinate different departments.
• Detailed action plans reduce waste, duplication and gaps: Clear action plans minimize waste, avoid repeating the same work and reduce planning gaps.
• Tries to link the present with the future: Current production and fund arrangements are decided by considering future sales and production needs.
• Provides a continuous link between investment and financing decisions: Investment and financing choices are made keeping in mind ongoing work and future plans.
• Makes evaluation of actual performance easier: Detailed objectives give a basis to compare actual performance with planned results of segments and departments.

• Financial planning tackles uncertainty of funds and supports smooth functioning and survival of business.
• It forecasts future conditions and enables preparation of alternative financial plans.
• It helps avoid business shocks and surprises by preparing the company for the future.
• It coordinates sales and production through clear policies, procedures and budgets.
• Detailed action plans reduce waste, duplication of efforts and planning gaps.
• It links present decisions with future requirements and connects investment and financing decisions.
• It sets detailed objectives that make evaluation and comparison of actual performance with planned results easier.