Key Objectives of financial planning
Creating a financial plan helps you see the big picture and set long and short-term life goals, a crucial step in mapping out your financial future. Long-term planning relates to long term growth and investment. It focuses on capital expenditure programs. Short-term planning covers short-term financial plan called budget. Typically, financial planning is done for three to five years. For longer periods it becomes more hard and less useful. Plans made for periods of one year or less are termed as budgets. Budgets are example of financial planning exercise in greater details. They include detailed plan of action for a period of one year or less.
This, financial planning strives to achieve the following twin objectives.
(a) To ensure availability of funds whenever these are required: The main objective of financial planning is that sufficient fund should be available in the company for different purposes such as for purchase of long term assets, to meet day-to- day expenses, etc. This include 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. If there is surplus money, financial planning must invest it in the best possible manner as keeping financial resources idle is a great loss for an organization.
Thus, a proper matching of funds requirements and their availability is sought to be achieved by financial planning. This process of estimating the fund requirement of a business and specifying the sources of funds is called financial planning.