Explain any four points that highlight the importance of financial planning.

Financial planning is important because:

(a) It helps the company to prepare for the future.

(b) It helps in avoiding business shocks and surprises.

(c) It helps in co-ordinating various business functions.

(d) It helps in reducing waste, duplication of efforts, gaps in planning and confusion.

(e) It links the present with the future.

(f) It provides a link between investment and financing decisions.

(g) It serves as a control technique.

 Financial planning is essentially the preparation of blueprint of an organisation’s future operations. It is a process of estimating the fund requirement of a business and specifying the source of such funds. 

The following points highlight the importance of financial planning: 

(a) It forecast the future under different business situations. It helps in preparing alternative financial plans to meet different situations. 

(b) It helps in smooth running of business by eliminating shocks and surprise. 

(c) It coordinates the various business functions. 

(d) The detailed plan of action made under financial planning reduces wastage, duplication of efforts and gaps in planning.

Main points of the importance or role of financial planning are as under:

1. Helps to face the eventualities: It tries to forecast various business situations. On this basis alternative financial plans are prepared. By doing so, it helps to face the eventual situation in a better way.

2. Helps in avoiding business shocks and surprises: Proper provision regarding shortage or surplus of funds is made by anticipating future receipts and payments. Hence, it helps in avoiding business shocks and surprises.

3. Helps in coordination: It helps in coordinating various business activities, such as sales, purchase, production, finance, etc.

4. Helps in avoiding wastage of finance: In the absence of financial planning, wastage of financial resources may take place. This arises due to the complex nature of business operations, such as excessively over-or underestimation of finance for a particular business operation. Such type of wastages can be avoided through financial planning.