What Is Financial Planning?
Financial planning is a model whereby planning for the future is done, specifically around how one will manage the finances and prepare for all of the potential expenses that may arise. The process involves analyzing the current financial situation and thereby identifying the goals and then developing and implementing relevant suggestions. Financial planning is a holistic approach that encompasses a plethora of services. Rather than focusing on a single aspect of finances, it views clients as real people with many goals like education, retirement, marriage, etc. It then addresses many financial realities to figure out and bring out the best in them. Financial worksheets, financial statements, and projected Cash flows form a part of the business financial plan.
Objectives Of Financial Planning
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It determines capital requirements which depend upon factors like the cost of current and fixed assets, promotional expenses, and long-term planning.
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It determines the capital structure which is a composition of capital required in the business which consists of equity and debt.
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It helps to Frame the financial policies about cash control, lending, and borrowing.
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It ensures that the financial resources are utilized in the best possible manner at minimum cost for maximum returns on investment.
Importance of Financial Planning
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Financial Planning helps to ensure a reasonable balance between the inflow and outflow of funds.
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Financial Planning ensures the suppliers of funds are investing in companies that exercise tools of financial planning.
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Financial Planning helps to grow and expand which helps to survive in the long run.
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Financial Planning reduces uncertainties about dynamic market trends.
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Financial Planning helps to reduce the uncertainties which can prove to be a hindrance to the growth of the company.
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It also helps in ensuring the stability and profitability of the concern.
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The Financial Planning Process:
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Determining the current financial situation based on financial statements
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Developing financial goals based on responsibilities
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Identifying alternative courses of action
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Evaluating the alternatives keenly
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Creating and implementing a financial plan of action
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Re-evaluating the plan for any loopholes
Below are a few common services that are provided:
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Tax: Financial advisors assist their clients with tax-related concerns. They can also determine how to increase tax refunds and decrease overall tax obligations.
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Estate: Estate planning seeks to make things easier for the family of the deceased. Preparing a will may be part of a financial planner’s services.
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Retirement: This helps a person to plan for retirement when their earnings turn zero but expenses are still on a horse-ride.
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Philanthropic: It’s always good to give something to people who need it. It provides higher productivity and efficiency.
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Education funding: Such plans are excellent if you have children or other dependents who want to pursue further education, possibly abroad. Having a plan for your finances can ensure that you are able to.
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Investment: Financial planning doesn’t involve managing your assets directly, but it can still help with your investment portfolio by keeping track of how much and in what kinds of investments you should be investing.
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Insurance: A financial planner helps to evaluate the insurance needs.
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Budgeting: A financial planner helps ensure that your spending is appropriate for your income and that you are not incurring debt.
Conclusion
Financial management has a function to estimate the requirements for capital that the organization needs. Financial planning is the process of formulation of goals, policies, procedures, programs, and budgets that refer to an organization’s finance function.
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