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Importance of Financial Planning

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Before understanding the importance of financial planning, one should know what it means precisely. Financial planning is a process to determine the organization's short and long term goals, mission and vision.

After considering these goals and priorities, the realistic and balanced plan is made in order to achieve those goals and also managing your funds for the organization. Financial planning is imperative for all businesses.

When it comes to money, planning has to be very concrete as there are many aspects that can affect financial planning. So the question here is, why do you need to make financial plans for an organization? And if you won't make it, in what way you could suffer? The question of these answers will be found below as we will let you know the significance of financial planning for an organization-

1)      Long term goals- 

You can name any big organization; their main focus would be on long term goals rather than short term. The financial planning will enable you to meet your financial goals in an explicit period of time. If we talk about investment, it is better to do it early in order to increase the chances of earning better and higher returns. 

2)      Emergencies-

You would have often heard this saying Prevention is better than cure’. When it comes to money, being ready even for a worse situation is better than regretting being in that bad situation. You may and will face unexpected and unavoidable times which become a hurdle in between you and your goals.

Without affecting primary objectives, financial planning helps us to always be ready for those situations. 

3)      Inflation-

It is one of the biggest importance of financial planning as Inflation is part of every economy in the world. It can destroy the purchasing power to a great extent. The main cause of inflation is the rate of increase in demand every year than the rate of increase in supply.

Financial planning is the crucial tool in order to sustain inflation as looking at the present scenario and future expected changes, it has become indispensable for every organization.

4)      Fixes the investment in the right projects-

By comparing distinctive investment proposals, financial planning advises how the funds have to be allocated for different purposes.

For Example- If a company has already set up financial plans by analyzing the future expected changes, the company would at least have a fair idea about that investment returns in comparison to a company who has not even made any financial plans for future perspective.

5) Facilitates operational activities and financial control-

Only when the right financial decisions are taken, it will ensure the smooth operation of distribution and production as well as the gentle flow of finance. The purpose of financial planning is to keep a check on the financial activities by comparing the actual cost with the estimated cost and the actual revenue with the estimated revenue.

6)      Helps in proper utilization of finance-

As we all know, finance is like blood for any business. All business plans depend upon how sound is the financial planning of a company. For example- A and B are 2 companies. A company has a capital of more than 100 crores and B company has a capital of fewer than 5 crores. Their investment and growth plans will be way different from each other.

But financial planning for both the companies is equally important as without the plans they would not be able to invest smartly keeping their long term goals and growth in mind.

7)      Helps in coordination- 

It helps in the coordination of various business functions like production, sales function etc.


By concluding the above importance of financial planning, we came to know that no matter even if it is a small scale or large scale enterprise, financial planning is essential for any business. You can even hire an expert, whose role would be just to create financial plans for your company which will not hinder the success of your business.






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