What is meant by Financial Planning ?

Answer – Financial planning estimates the funds needed and decides their timing and sources so that the enterprise can carry out its plans.

Objectives: ensure funds are available when required; avoid both shortage and unnecessary surplus, since idle funds reduce returns and shortages interrupt operations.

Importance: helps anticipate future requirements; reduces uncertainty and surprises; coordinates investment and financing decisions; connects current actions with future consequences; improves coordination between departments; links operating plans with financial needs; provides a basis for evaluating performance.

The process involves forecasts of sales, expenses, assets and cash flows, followed by estimating the financing gap and suitable sources. A sound plan includes flexibility for unexpected changes.