Finance: Whenever any person start the business then finance is an important function of business. It is just like a human blood. As blood is necessary for the human body similarly finance is required for every business. It is said to be lifeblood of the enterprise. Without proper finance it is impossible to achieve the objective. Every business whether related to big or small organization is needs finance to determine the objective.
- What to do?
- When to do?
- Where to do?
- How the results are evaluated?
Financial planning: first of all financial plan should be careful determined. It is based on clear cut objective. The financial plan should be always flexible. It is not depend on the outside resources. A financial plan should be simple that every person can easily understand a financial plan of the business. Every businessman aims at proper utilization of all the resources and optimum utilization of funds. Plan should be made in such a way that to gain higher profit in the business. Because its aim to achieve maximum profit in the business. Financial planning is the important function of the financial manager.
Steps in financial planning:
- Establishing objective of the financial planning
- Formulating financial policies
- Formulating procedures
- Flexible
It can explain in detail:
- Establishing objective of the financial planning: first of all starting the business, both long term and short term objective must be clear because when objective clear then it is very easy to achieve it. There should be an optimum utilization of all the financial resources in a best manner or optimum utilization of funds.
- Formulating financial policies: The financial policies deals with the procurement, administration and distribution of business funds in a best possible way. Neither the plan should suffer due to shortage of funds nor there wastage use of them.
- Formulating procedures: The procedure follows the formulating of policies. It should not impose burdened on the economy. There should be a balancing cost and risk.
Flexible: A financial plan should not be rigid in nature always flexible in nature. When it is flexible then it is easily handle or change according to the situation or circumstances.
Limitation:
- Difficulty in forecasting: once a financial plan is prepared then it is very difficult to imagine what happened in advanced because it is uncertain and it is impossible for a person to predict the future in advance. It is very difficult to forecast the future.
- Proper funds: its very difficult to arrange the adequate funds for the business.
- Difficulty in change: once a financial plan is prepared then it is very difficult to change the plan according to the situation and circumstances.
- Problem of co-ordination: There is always a problem of the proper co-ordination.
- Rapid changes: it is the main limitation of the financial planning. Because customer demand changes day by day. So, it is very difficult to imagine the consumer demand. The incorporation of new change requires a change in financial plan every time.