Importance of financial planning is as follows:
(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.
(5) Helps to Link the Present with the Future:
It makes effort to link the present with the future. By doing so, it helps to minimise the risk of future uncertainties.
(6) Helps in Creating Link between Investments and Financing Decisions:
It helps in deciding that where to invest and from where the required funds will be made available. Under it, the mix of share capital and debt capital is made in such a manner that cost of capital is reduced to minimum.
(7) Financial Control:
All financial activities are kept under complete control with the help of financial planning. Under it, standards of financial performance are set. Actual performance is compared with the standards so set. Deviations and their causes are traced and corrective measures are taken.
