Objectives of Financial Planning

Financial planning focuses on achieving the following two objectives:

• To ensure availability of funds whenever required: The main objective of financial planning is that sufficient funds should be available in the company for different purposes such as the purchase of long-term assets, to meet day-to-day expenses, etc. It ensures the timely availability of finance.
• To see that firm does not raise resources unnecessarily: Excess funding is as bad as inadequate or shortage of funds. If there is surplus money, financial planning must invest it in the best possible manner. As keeping financer resources ideal is a great loss for an organization.

Financial planning includes both short-term as well as long-term planning. Long-term planning focuses on a capital expenditure plan. It is normally done for 3 to 5 years. Whereas short-term financial plans are called budgets, and they are for one year or less.

Financial Planning is essential for the preparation of a financial blueprint for a business organization. Its main objective is to ensure that ample funds are available at right time. If enough funds are not available the firm will not be able to honour its commitments and carry out its plans. On the other hand, if more funds are available, it will add costs and encourage wasteful expenditure. Financial management aims to choose the best investment and financing alternatives by focusing on their cost and benefits. Having an objective to increase the shareholder’s wealth. Financial planning, on the other hand, aims at smooth operation by emphasizing fund requirements and their availability in the light of the financial decision. It tries to forecast all the items which are likely to change.

Financial planning is the process of estimating the requirement of finance of a business specifying the sources and ensuring the availability of enough funds at the right time. 

The following three questions should be kept in mind while making financial plans for the business:

• How much capital is needed in the business?
• What should be the methods of meeting the financial needs of the business?
• How can the firm utilize the available funds in the best possible manner?

Financial Planning includes three main aspects:

• Estimation of quantum of finance, i.e., total finance requirements of the business.
• Determination of pattern of financing, i.e., form and proportion of various securities to be issued to raise the required amount.  
• Utilization of finance, by laying down policies and procedures.