Question

Explain the twin objectives of financial planning.

State the two objectives of financial planning.

Answer 1

Financial planning means designing a blueprint for the financial operations of the firm. It ensures the smooth functioning of the organisation by the right allocation of resources available at the right time. It helps the firms are able to forecast the requirement of find in the future.

Financial planning includes:

1. Calculate the amount of money required.
2. Determination of funding sources.
3. Determination of appropriate policies for proper fund utilization.

The objectives of financial planning are to guarantee that sufficient finances are available at the appropriate time.

The two objectives of financial planning are:-

1.  To ensure the availability of sufficient funds whenever required: This includes an accurate estimate of the finances needed for various reasons (long-term assets/working capital requirements). It needs to estimate when these monies will be made available. Financial planning also attempts to identify potential sources of these funds.
2. To see that the firm does not raise resources unnecessarily: Excess funding is just as bad as a lack of funds. An effective financial planning system ensures that money is not raised excessively in order to minimise unwanted expense increases. If there is any extra money, it should be spent wisely to avoid any losses for the organisation.