Page 5 - Lesson Note 3

It must be kept in mind that financial planning is not equivalent to, or a

substitute for, financial management. Financial management aims at
choosing the best investment and financing alternatives by focusing on

their costs and benefits.

Its objective is to increase the shareholders’ wealth. Financial planning
on the other hand aims at smooth operations by focusing on fund
requirements and their availability in the light of financial decisions.

Financial planning strives to achieve the following twin objectives;

(a) To ensure availability of funds whenever required:

This includes a proper estimation of the funds required for

different purposes such as for the purchase of long term assets or
to meet day-to-day expenses of business etc. Apart from this,
there is a need to estimate the time at which these funds are to

be made available. Financial planning also tries to specify possible
sources of these funds.

(b) To see that the firm does not raise resources unnecessarily:

Excess funding is almost as bad as inadequate funding. Even if
there is some surplus money, good financial planning would put it

to the best possible use so that the financial resources are not left
idle and don’t unnecessarily add to the cost.

IMPORTANCE
Financial planning is an important part of overall planning of any

business enterprise. It aims at enabling the company to tackle the
uncertainty in respect of the availability and timing of the funds and

helps in smooth functioning of an organisation.The importance of
financial planning can be explained as follows: