Financial planning implies deciding what to spend, how to spend and how much to spend according to the funds that are available. Financial planning needs to be done by everyone from individuals to large multi-national corporations. The larger the quantum of funds that one is dealing with, the more the effort required to plan its usage appropriately.
To make sure that sufficient funds are available for meeting day-to-day expenses, purchasing long term assets, and dealing with unforeseen costs. Planning is not only done to make sure that finance is available in a timely manner, but also that the company knows exactly where to raise the money from when it is needed.
It is not just a shortage of cash that can cause problems; excess cash can be equally difficult to manage. If there is a shortage of funds, it can be inferred with certainty that the company will find it difficult to function. But having excess cash and not using it in an optimal manner is a huge wastage of resources. When the company is flush with funds, they should be looking for ways to invest it wisely and ensure that they have expansion plans in place and are thinking of new ventures.
Financial planning adds tremendous value to the company. In fact, without it no enterprise can function efficiently. Below are some of the reasons why.
Financial planning is a year-round activity that requires the support of accurate financial reporting and analysis. Not only does it need to be done constantly, but the outcomes of those plans also need to be monitored. In case they are not working out, new plans need to be drawn up or the old ones need to be modified. The larger the enterprise, the larger the size of the team working on financial planning and the greater the skill needed. Financial planning starts before the commencement of a venture and carries on throughout its lifetime. It is a vital activity for all businesses.
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