MEANING OF FINANCIAL PLANNING Finance is the life blood of business. No business can run successfully without adequate finance.

Finance is required to bring a business into existence, to keep it alive and also to see it growing and prospering. Finance is an important function of business. The application of planning to this function is called financial planning. Financial planning is mainly concerned with the economical procurement and profitable use of funds. Financial Planning is the process of estimating the capital required and determining its competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise. According to Gutlman and Dougall, "Financial planning is concerned with raising, controlling and administering of funds used in business." In the words of Bouneville and Dewey, "Financial planning consists in the raising, providing and managing of all the money, capital of funds of any kind to be used in connection with the business." Financial planning is an important element of the overall planning of business enterprise. Financial planning includes the following: 1. Estimating the amount of capital required for financing the business enterprise; 2. Determining capital structure; 3. Laying down policies for the administration of capital; 4. Formulating the programmes to provide the most effective use of capital. Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision andobjectives have been set. The Financial Plan describes each of the activities, resources, equipment and materials that are needed to achieve these objectives, as well as the timeframes involved. The Financial Planning activity involves the following tasks; Assess the business environment Confirm the business vision and objectives Identify the types of resources needed to achieve these objectives Quantify the amount of resource (labor, equipment, materials) Calculate the total cost of each type of resource Summarize the costs to create a budget Identify any risks and issues with the budget set

Performing Financial Planning is critical to the success of any organization. It provides the Business Plan with rigor, by confirming that the objectives set are achievable from a financial point of view. It also helps the CEO to set financial targets for the organization, and reward staff for meeting objectives within the budget set. The role of financial planning includes three categories: 1. Strategic role of financial management 2. Objectives of financial management 3. The planning cycle:

According to the Financial Planning Association of Australia, financial planning involves a six step process: 1. 2. 3. 4. 5. 6. Gathering your financial data Identifying your goals Identifying any financial issues Preparing your financial plan Implementing your financial plan Reviewing and revising your plan

OBJECTIVES OF FINANCIAL PLANNING Financial Planning has got many objectives to look forward to: 1. Determining capital requirements- This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements. 2. Determining capital structure- The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and long- term.

3. Framing financial policies with regards to cash control, lending, borrowings, etc. 4. A finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on investment.

5. To collect funds at time when the cost of capital is minimum, considering the investors who are willing to bear risk. 6. To make financial plan simplified according to the objectives of the plan

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

CHARACTERISTICS OF A FINANCIAL PLANNING The main characteristics of a good financial planning are as follows: 1. SIMPLICITY The financial plan should be as simple as possible so that it can be easily understood even by a layman, property executed and administered. A complicated financial plan creates unnecessary complications and confusion. 2. BASED ON CLEAR-CUT OBJECTIVES The financial plan should be based on the clear-cut objectives of the company. It should aim to procure adequate funds at the lowest cost so that the profitability of the business is improved. 3. FLEXIBILITY The financial plan should not be rigid, but rather flexible enough to accommodate the changes which may be introduced in it as and when necessary. The rigid composition of the financial plan may cause unnecessary irritation and may limit the future development of the business unit. 4. SOLVENCY AND LIQUIDITY The financial plan should ensure solvency and liquidity of the business enterprise. solvency requires that short-term and long-term payments should be made on due dates positively. This will ensure credit worthiness and good will to the business enterprise. Liquidity means maintenance of adequate cash balance in hand. Sometimes insufficiency of cash may make a business enterprise bankrupt. 5. PLANNING FORESIGHT Financial planning should have due foresight and vision to access the future needs, scope and scale of operation of the business enterprise. On the basis, financial

planning should be done in such a manner that any adjustment needed in the future may be made without much difficulty. As the business proceeds, the financial adjustments become necessary which should be adjustable properly as and when desired. 6. CONTINGENCIES ANTICIPATED The financial plan should be able to anticipate various contingencies which may arise in the near future. The financial plan should make adequate provision for meeting the challenge of unforeseen events. 7. MINIMUM DEPENDENCE ON OUTSIDE SOURCES A long-term financial planning should aim at minimum dependence on outside resources. This can be possible by retaining a part of the profits for ploughing back. 8. INTENSIVE USE OF CAPITAL Financial planning should ensure intensive use of capital. As far as possible, a proper balance between fixed and working capital should be maintained. 9. PROFITABILITY A financial plan should be drafted in such a way that the profitability of the business enterprise is not adversely affected. 10. ECONOMICAL The financial plan should be quite economical i.e., the cost burden of raising various types of capital should be minimum. 11. GOVERNMENT FINANCIAL POLICY AND REGULATION The financial policy should be prepared in accordance with the government financial policy and regulation. It should not violate it under any circumstances.