Financial Planning is one of the most important exercises that businesses have to undertake to make good decisions and also keep business viable amidst competition. Businesses shouldn’t take decisions in dark and this is where they need a Certified Financial Planner to guide them through the decision making process. Here we take a look at the objectives and importance of financial planning in detail –
Objectives of Financial Planning
Here we look at some of the key objectives for a business when it undertakes financial planning –
- Understanding capital requirement – Getting clear idea of the capital requirement for a planned expansion or acquiring a new business is very important. It depends on number of factors such as competition, market scenario, the assets a business has and its long term planning. A financial planner can dig deep into the book and other relevant data and ascertain short and long term capital requirements.
- Capital structure planning – This is one of the most significant stages in financial planning where you will need to chalk out a well-defined capital structure where important decisions would need to be taken in terms of debt to equity ratio.
- Framing policies – Financial policies are the bedrock of your investments and acquisitions. A financial planner would set policies with regards to your lending, borrowings and cash control both in the short as well as long term.
- Resource utilization – The success of any business move rests on maximum utilization resources at hand. Your financial plan would determine the roadmap for getting best out of the resources and also earning highest return on investments.
Importance of Financial Planning
As we have discussed above financial planning involves determining the objectives, policies and budgeting both in the short and long term. Here’s why it is important for your business –
- Avoiding debt trap – Debt trap can sound doomsday for any business. When it comes to expanding business it often seems good to raise funds but there are dangers of raising unnecessary capital instead of looking into a business’ own resources. Financial planning helps in avoiding debt traps.
- Fluidity in Funding – As much as avoiding debt trap is important so is to ensure that your business doesn’t suffer a fund crunch. With proper financial planning, you can ensure there is a good balance between the outflow and inflow that doesn’t hurt your operations.
- Long Term Goals – Every decision that a business takes with respect to investments or divestments should be aligned to the long term goals of the business. This is what financial planners determine during their research.
- Mitigating Risks – Every business is exposed to several risks and financial planners would lay down policies and plans to mitigate these risks.
Get a Certified Financial Planner onboard and you will be able to align your business moves with the long term goals and objectives of your business.
Summary – In this write-up, we talk about the objectives and importance of financial planning and how Certified Financial Planners can help businesses.