Why financial planning is important in a company
It is already stated that financial planning is an important partof every business organization and it acts as the spinal cord ofthe company. However, not just an organization but everyindividual needs to have a financial goal to secure their future.
But, a question arises in many minds that what is the actualimportance of financial planning.
The answer is quite big. Financial planning serves countlesspurposes in our lives. This is not just an investment rather itis an ongoing process that link the financial planning withobjectives of the company. It is a step towards the dream.
When a company has a sound financial planning, the managercan be assured to enjoy a rich future.
The main importance of financial planning is outlined here inmore details.
A company involves several day to day operations and all ofthem requires adequate amount of resources and money.
Once there is any shortage of funds or resources it affectsthe production department greatly. But, when there is asound financial planning, all these issues are resolved easily.
It is better to say that these kinds of issues do not ariseactually.
While cash shortage is a big deal in a functional andproperly running business organization, excess amount ofcash too can act as a hindrance. Cash should be usedoptimally to ensure no wastage of funds and resources. Anda sound financial planning takes care of that part as well.
Stability should be maintained in a business organization toachieve set goals smoothly. And it requires a proper balancebetween cash inflow and outflow. If cash outflow is morethan cash inflow, this is nothing but shortage of cash. So,the financial advisor should ensure that the cash inflow andoutflow is happening correctly. It helps to maintain thestability in a company.
The market trend is prone to change very frequently whichaffects the financial situation of the company a lot. Changingmarket trend acts as a hindrance in the company growthand thus affects their bottom line. Apart from this, there aremany other uncertainties which prevent the growth of acompany. But if the company is confident enough of theirproper financial planning, it helps them overcome all thetough situation by supplying adequate funds and resources atthe right time.
A company requires plenty of funds to accomplish and carryon all their tasks smoothly. But how to raise the neededfunds, Financial planning again plays a vital role here. Thereare several ways of raising funds such as issuing of debts,shares, taking loans from banks etc. Once the company hasdecided of a certain plan to raise money, the next taskinvolves that which bank they will approach for loans or elseto whom they will issue debts or shares. A proper financialplanning takes care of all these stuff and helps theorganization to work hassle free.
An organization should take correct decision when it comesto investing in the right proposal. You can be flooded withseveral investment proposal options and all of them havetheir own advantages and disadvantages. The financial advisorneeds to identify that which proposal is most profitable andwhich one have better chances of success to invest in theright proposal. So, without a proper financial planning and anexpert financial advisor, this plan can never be implementedproperly.
Financial planning is the foundation of financial control. Acompany should have correct control on the finance part toensure the right and optimal usage of resources and funds.
When all the members of the financial team are well knownof the funds allocated to certain department things becomemuch easy for them. They can handle all the issuesseamlessly that can act as an obstacle on their way.
A proper financial planning also ensures that raw materialand other needed resources are available always to ensureno shortage of raw materials. The team should make certainthat there is continuous flow of finance for the production tostay unstopped.
Consistency of goals is a great thing in the organization thatindicates your business organization is stepping forward atthe right direction. And thankfully, financial planning againplays a vital role here. Finance department first look at thecompany mission, vision, objectives to work according to that.
They also allocate the needed amount of money to everydepartment and ensure their work is progressing smoothly.
Thus it takes control of every single aspect of the companyand there is a proper stability.
Company growth depends a lot on the proper financialplanning. This department supports the strategic growth ofthe business organization. Financial planning takes intoconsideration all the possible risk factors, market changingfeatures and other hindrance to support the growth.
Inflation is a big issue that affects everyone. It affects thebusiness organization as well. Inflation occurs when there ismore demand and less supply. But a company can keepthemselves untouched from this issue if they have a soundfinancial planning. It just needs adequate amount of funds tocombat that situation and that’s all. And a well plannedfinancial plan should be able to cope up with this situation.
So, the importance of financial planning is really massive. Thisprocess should not be overlooked by any organization anyhow.
Also, just making a plan is not enough but it’s a constantprocess that require great support of the proper financialinformation such as financial reporting and analysis. Theoutcome of the plan is monitored by the experts veryfrequently to check if things are working out. And in case thedrawn plan fails to offer satisfied outcome, the financial advisorsmodifies the plan or else try creating a complete different planto set the achieve goals.
The financial plans are not same for every organization. Itentirely depends on the type of business and company size.
Bigger the company, more members will be there in thefinancial team. Financial planning actually goes for the entire lifeof the business and it is started even before the inaugurationof the business.