Importance of Financial Planning

For the success of any business it is essential to have a sound financial planning. It will provide policies and procedures to achieve close co-ordination between the various functional areas of business. It aims at enabling the business to tackle the reducing uncertanities in respect of the availability and timing of the funds and helps in smooth functioning of an organisation. This will lead to minimisation of wastage of resources. The management can follow an integrated approach in the formulation of financial policies, procedures and programmes only if there is a sound financial plan.

Importance of Financial Planning:
1. Financial planning provides policies and procedures for the sound administration of the finance function.
2. Financial planning results in preparation of plans for the future. Thus, new projects could be undertaken smoothly.
3. Financial planning ensures required funds from various sources for the smooth conduct of business.
4. Uncertainly about the availability of funds is reduced. It ensures stability of business operations.
5. Financial planning attempts to achieve a balance between the inflow and outflow of funds. Adequate liquidity is ensured throughout the year. This will increase the repuration of the business.
6. Cost of financing is kept to the minimum possible and scarce financial resources are used judiciously.
7. Financial planning serves as the basis of financial control. The management attempts to ensure utilzation of funds in tune with the financial plans.