State the importance of financial Planning.

Answer: Importance of Financial Planning.

          The finance manager gets entire information about his firm’s activities and on that basis, he prepares a financial plan. The financial plan so prepared becomes crucial with respect to decision making.
The importance of financial planning is as below:

Elimination of Waste, Co‐ordination,Dynamism,Communication, Decision Making & Integration:Futuristic:

I. Elimination of Waste:
         Through financial planning, several factors such as change in government policy (on taxes), fluctuating interest rates etc. can be anticipated and duly tackled.‐ If there is lack of proper financial planning, the organization may suffer huge irreversible and uncompensable losses due to wasteful expenditure.

II. Co‐ordination:

           Proper financial planning is the key for smooth functioning of the organizational activities such as production, distribution, marketing and personnel. These activities will hamper if not supported by proper financial planning. Finance manager brings about co‐ordination among all departmental heads of the organization.

III. Dynamism:

                 A dynamic finance manager would take initiative and face various changing financial situations/challenges as and when they arise. Proper and effective financial planning helps the finance manager to forecast the future trends. Such forecasting helps the organization to undertake only profitable projects and avoid the unprofitable ones.

IV. Communication:

          Proper financial planning helps the finance manager to communicate the various aspects of financial plan to the executives of other departments. This further helps to eliminate the wastage of time, goodwill and financial resources of the company.

V. Decision Making:

           Financial planning helps a firm to take appropriate and timely decisions to achieve its objectives. Thus, to implement any scheme, there must be a budgetary provision in the financial planning.

VI. Integration:

           A proper financial plan provides a fairly good idea to the firm about its available resources. Financial planning is to be completed in full consultation and co‐operation of other departments, which in turn, promotes team spirit among all the executives of the company. Thus, financial planning assists in integration of firm’s activities.

VII. Futuristic:

         Financial planning takes into account not only the present but also the future developments. This futuristic element of financial planning helps for advance programming.

Write a short note on: Capital Structure and its components.

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