Financial Planning: Objectives and Importance - GeeksforGeeks (2024)

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Chapter 1: Nature and Significance of Management Chapter 2: Principles of Management Chapter 3: Business Environment Chapter 4: Planning Chapter 5: Organising Chapter 6: Staffing Chapter 7: Directing Chapter 8: Controlling Chapter 9: Financial Management Chapter 10: Financial Markets Chapter 11: Marketing Chapter 12: Consumer Protection CBSE Previous Year Papers (2020) Objectives of Financial Planning Financial Planning Vs Financial Management Importance of Financial Planning Please Login to comment... Similar Reads

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CBSE Class 12 Business Studies Notes

Chapter 1: Nature and Significance of Management

Chapter 2: Principles of Management

Chapter 3: Business Environment

Chapter 4: Planning

Chapter 5: Organising

Chapter 6: Staffing

Chapter 7: Directing

Chapter 8: Controlling

Chapter 9: Financial Management

Chapter 10: Financial Markets

Chapter 11: Marketing

Chapter 12: Consumer Protection

CBSE Previous Year Papers (2020)

Last Updated : 06 Jun, 2024

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Objectives of Financial Planning

Financial planning focuses on achieving the following two objectives:

To ensure availability of funds whenever required: The main objective of financial planning is that sufficient funds should be available in the company for different purposes such as the purchase of long-term assets, to meet day-to-day expenses, etc. It ensures the timely availability of finance.
To see that firm does not raise resources unnecessarily: Excess funding is as bad as inadequate or shortage of funds. If there is surplus money, financial planning must invest it in the best possible manner. As keeping financer resources ideal is a great loss for an organization.

Financial planning includes both short-term as well as long-term planning. Long-term planning focuses on a capital expenditure plan. It is normally done for 3 to 5 years. Whereas short-term financial plans are called budgets, and they are for one year or less.

Financial Planning Vs Financial Management

These are the differences between financial planning and financial management:

Points of differences	Financial Planning	Financial Management
1. Meaning	Financial planning is only related to finance related planning	Financial management includes investment, use, and distribution of funds.
2. Objectives	The main motive is to create wealth and meet the different financial requirements.	Financial management keeps and grows the existing wealth. This is the main motive of financial management.
3. Orientation	Financial planning is goal oriented.	Financial management is opportunity oriented.
4. Functions	In financial planning generally, passive wealth management is involved.	In financial management, active wealth management is involved.
5. Decisions	In financial planning, the decisions are time management and financial goals.	In financial management, the decision is generally made based on the investment portfolio.
6. Covers	Financial planning covers cash flow, tax planning, etc.	Financial management covers the wealth and growth strategy.

Importance of Financial Planning

Sound financial planning is essential for the success of any business enterprise. Its need is felt because of the following reasons:

Prepares for future challenges: It helps in forecasting what may happen in the future under different business situations. It also facilitates smooth functioning and running of the business by preparing them to face future challenges.
Helps in avoiding business shocks and surprises: By preparing a blueprint to face different types of situations, financial planning helps businesses in avoiding business shocks and surprises.
Coordinate various functions: It helps in coordinating various functions, production, sales, etc by providing clear policies and procedures.
Proper utilization of finance: Detailed plans of action prepared under financial planning reduce waste, duplication of efforts, and gaps in planning.
Acts as a link: It tries to link the present with the future by anticipating sales, growth, etc. It also links the investment and financing decisions continuously
Evaluates actual performance: By spelling out the detailed objective for various business segments. It makes the evaluation of actual performance easier.

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