chapter = 8 financial planning. financial planning “financial planning pertains to the function of...

Chapter = 8

FINANCIAL PLANNING

Financial Planning

“Financial Planning pertains to the function of finance and includes the determination of the firm’s financial objectives, financial policies and financial procedures.”

Objectives of Financial Planning

To make available the adequate funds for business so that they can be used upto the optimum point

To collect the funds at a time when the cost of capital is minimum, considering the investors who are willing to bear risk.

To bring flexibility in planning so that adjustment in the capital structure can be made with the changing circumstances.

To make the financial plan simplified according to the objectives of plan.

Types of Planning Planning

Short term financial planningMedium term financial planningLong term financial planning

Significance of Financial Planning

Optimum utilization of resourcesHelpful in optimum capital structureEfficient operation of BusinessExpansion of BusinessAdequate Liquidity

Procedure of Financial Planning

Laying down Financial objectivesFormulating Financial policiesDeveloping Financial proceduresPreparation of Financial PlanReviewing of Financial planning

Characteristics of a sound Financial plan

SimplicityIntensive useFlexibilityLiquidityEconomicalContingenciesUniformityAvailability

Factors Financial Plan

Nature of BusinessRiskPlans for Growth and ExpansionAttitude of ManagementGovernment controlScope of BusinessFacility of Lease

Limitations of Financial planning

Based on ForecastsRigid Attitude of ManagementLack of Coordination

Assessing Funds Requirements

Assessment of Fixed Assets Requirements

Factors affecting the funds for fixed assets

Internal factors

External factors

Internal factors

Nature of BusinessSize of businessScope of BusinessFacility of leaseSub ContractAcquisition of old equipmentsAcquisition of assets on rentAvailability of fixed assets at concessional rates

External factors

International conditions Population TrendsSecular Trends in the economyConsumer PreferencesCompetitive factorsTechnological changes

Assessment of funds required for current assets

Assessment of funds requirements of intangible assetsPromotion expensesOrganisation expensesOperating lossesCost of financingGoodwill or Patents