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 planning  Medium term financial planning  Long term financial planning

Significance of Financial Planning  Optimum utilization of resources  Helpful in optimum capital structure  Efficient operation of Business  Expansion of Business  Adequate Liquidity

Procedure of Financial Planning  Laying down Financial objectives  Formulating Financial policies  Developing Financial procedures  Preparation of Financial Plan  Reviewing of Financial planning

Characteristics of a sound Financial plan  Simplicity  Intensive use  Flexibility  Liquidity  Economical  Contingencies  Uniformity  Availability

Factors Financial Plan  Nature of Business  Risk  Plans for Growth and Expansion  Attitude of Management  Government control  Scope of Business  Facility of Lease

Limitations of Financial planning  Based on Forecasts  Rigid Attitude of Management  Lack 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 Business  Size of business  Scope of Business  Facility of lease  Sub Contract  Acquisition of old equipments  Acquisition of assets on rent  Availability of fixed assets at concessional rates

External factors  International conditions  Population Trends  Secular Trends in the economy  Consumer Preferences  Competitive factors  Technological changes

Assessment of funds required for current assets

Assessment of funds requirements of intangible assets  Promotion expenses  Organisation expenses  Operating losses  Cost of financing  Goodwill or Patents