Financial plan helps to determine the optimal capital structure of the firm. It is the function of the financial manager to prepare the financial plan taking into account the company policy and the forecasts of his production and marketing colleagues. It is his responsibility to coordinate the plans of each area.
Advantages of financial planning are –
- It points out to management what funds are needed, and when, for what duration, if the specific plants and programmes of the company are to be implemented.
- It highlights to management what resources are needed, and enables the management to consider suitable alterations to plans before commitments are made.
- It also serves as a basis for review and control whereby deviations from the expected performance can be promptly identified and necessary corrective actions taken without delay.
Financial planning helps to management to avoid waste by providing rules and procedures that suitable the present management. A developed financial plan tends to relieve the top management from the burden of detailed explanation to the middle and lower level managers.
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