10 Key Importance of Financial Planning is very helpful to get you Success in the Business Enterprise. Why Financial Planning is very helpful? Because Financial Planning helps in diminishing the vulnerabilities which can be a deterrent to the development of the organization. Guarantees providers of funds to effortlessly put resources into organizations which provokes financial planning. Financial Planning supports development and expansion programmes which support in the long-run sustenance of the organization. So, what we the question discussed is - Why Financial Planning is Essential for the Success of any Business Enterprise?
The Concept of Financial Management is explaining the Importance of Financial Planning with Tops 10 Key.
Financial planning is the plan needed for estimating the fund requirements of a business and determining the sources for the same. It essentially includes generating a financial blueprint for the company's future activities. No matter how accurately you keep track of your income and expense, failing to plan your business’s finances can lead to unnecessary interest payments, lack of capital during critical periods, and eventual legal problems. Using a few basic budgeting, forecasting, and tracking techniques, you can maximize your profit potential. A financial advisor can help you understand how your current decisions will affect the options and choices available during your Business Enterprise to create perfect Financial Planning.
Importance of Financial Planning:
The following 10 Key Importance of Financial Planning here below are; Why Financial Planning is Essential for the Success of any Business Enterprise? Its need is felt because of the following reasons:
It Facilitates Collection of Optimum Funds:
The financial planning estimates the precise requirement of funds which means to avoid wastage and over-capitalization situation.
Helps to Face the Eventualities:
It tries to forecast various business situations. On this basis, alternative financial plans are prepared. By doing so, it helps to face the eventual situation in a better way.
It Helps in Fixing the Most Appropriate Capital Structure:
Funds can be arranged from various sources and are used for long term, medium term and short term. Financial planning is necessary for tapping appropriate sources at an appropriate time as long-term funds are generally contributed by shareholders and debenture holders, medium term by financial institutions and short-term by commercial banks.
Helps in Investing Finance in Right Projects:
The financial plan suggests how the funds are to be allocated for various purposes by comparing various investment proposals.
Helps in Operational Activities:
The success or failure of production and distribution function of business depends upon the financial decisions as the right decision ensures smooth flow of finance and smooth operation of production and distribution.
The base for Financial Control:
Financial control may be construed as the analysis of a company's actual results, approached from different perspectives at different times, compared to its short, medium and long-term objectives and business plans. All financial activities are kept under complete control with the help of financial planning. Under it, standards of financial performance are set.
Actual performance is compared with the standards so set. Deviations and their causes are traced and corrective measures are taken. Financial planning acts as the basis for checking the financial activities by comparing the actual revenue with estimated revenue and actual cost with an estimated cost.
Helps in Proper Utilization of Finance:
Finance is the lifeblood of business. So financial planning is an integral part of the corporate planning of the business. All business plans depend upon the soundness of financial planning. In equipment and tool rental companies, utilization is the primary method by which asset performance is measured and business success determined. In basic terms, it is a measure of the actual revenue earned by assets against the potential revenue they could have earned.
Helps in Avoiding Business Shocks and Surprises:
By anticipating the financial requirements financial planning helps to avoid shock or surprises which otherwise firms have to face in uncertain situations. The proper provision regarding shortage or surplus of funds is made by anticipating future receipts and payments. Hence, it helps in avoiding business shocks and surprises.
Financial planning helps in deciding debt/equity ratio and by deciding where to invest this fund. It creates a link between both the decisions. The separation of financing and investing decisions is one such important concept. It is important because we have to make a very important adjustment based on this principle. That adjustment is the fact that we do not subtract interest costs while calculating the cash flows that a project will generate.
This is different from accounting where we were used to subtracting the interest costs to calculate our income. So here we must remember that we have to exclude interest costs from our calculation. It helps in deciding that where to invest and from where the required funds will be made available. Under it, the mix of share capital and debt capital is made in such a manner that cost of capital is reduced to a minimum.
Helps in Coordination:
In the organization, there are many individuals, groups and departments. They perform many different activities. Coordination means to integrate these activities for achieving the objectives of the organization. Coordination is done to achieve the objectives of the organization. Coordination is a process.
It helps in coordinating various business functions such as production, sales function etc. The organization of the different elements of a complex body or activity so as to enable them to work together effectively. It helps in coordinating various business activities, such as sales, purchase, production, finance, etc.
It Links Present with Future:
Financial planning relates present financial requirement with the future requirement by anticipating the sales and growth plans of the company. Also, it makes effort to link the present with the future. By doing so, it helps to minimize the risk of future uncertainties.
Helps in Avoiding Wastage of Finance:
In the absence of financial planning, wastage of financial resources may take place. This arises due to the complex nature of business operations, such as excessively over-or underestimation of finance for a particular business operation. Such type of wastages can be avoided through financial planning.