Fundamentals of Financial Planning

Financial planning is one of the management functions, namely planning, which is applied in the financial sector. So, the limitation of financial planning is included in the scope of financial management. The following is a discussion of the meaning, purpose, and importance of financial planning for organizations, especially for companies.

Understanding Financial Planning

Financial planning is the process of planning or making financial plans related to the need for funds, procurement of funds, use of funds, and methods of analyzing financial statements that will be used in the organization.

Financial planning is also about the problem of projecting company income in a certain period. By doing financial planning, the organization can get an idea of the financial management activities that will be carried out.

Purpose of Financial Planning

1. Determine capital requirements

Capital requirements depend on factors such as current and fixed asset costs, promotion costs and long-term planning. Capital requirements must be viewed in terms of both short-term and long-term requirements.

2. Determine the capital structure

Capital structure is the composition of capital, namely the relative type and proportion of capital required in the business. This includes debt-to-equity ratio decisions, both short-term and long-term.

3. Framing financial policy

This is related to the possibility for decision making under certain conditions. Financial policies are related to the control of cash, debt, receivables, and others.

4. Take advantage of scarce financial resources

Financial managers must ensure that scarce financial resources are optimally utilized in the best possible way, at least cost to get the maximum return on investment.

The Importance of Financial Planning

Organizational financial planning is important for the following reasons:

Ensure the availability of adequate funds.
Assist in ensuring a fair balance between outflows and inflows of funds so that stability is maintained.
Ensure that it is easy for suppliers of funds to invest in companies that carry out financial planning.
Assist in creating growth and expansion programs that help the company's long-term viability.
Reducing the uncertainty associated with changing market trends which can be easily dealt with through sufficient funds.
Helps in reducing uncertainty that can be a barrier to the company's growth. This helps in ensuring the stability and profitability of concern.

Financial planning must be able to handle these problems so that it can provide financial resilience for the company or organization.