How do you xxplain Steps involved in financial planning?

Answer 1

Financial PlanningThe Finance Manager has to estimate the financial requirements of the company. He should determine the sources from which capital can be raised and determine how effectively and judiciously these funds are put into use so that repayments can be done in time. Financial planning is deciding in advance the course of action for future. Financial planning includes: Estimation of the amount of funds to be raised, finding out the various sources of capital and the securities offered against the money so received and laying down policies to administer the usage of funds in the most appropriate way. Estimate capital requirements: This is the first step in financial planning. The following factors may be used to determine the capital: o Requirement of fixed assets. o Investment intangible assets like patents, copyrights, etc. o Amount required for current assets like stocks, cash, bank balances, etc. o Cost of set-up and likely expenses to be incurred on the new issue of shares and debentures. Determine the type of sources to be acquired and their proportion: The Finance Manager has to decide on the form in which the money is to be sourced, that is, debt, equity, preference shares, loans from banks and the proportion in which these are to be procured. Steps in Financial Planning: The financial planning process involves the following steps: # Projection of financial statements Financial statements are the company's profit and loss account and the balance sheet. These two statements can be prepared for a certain period of future time and they help the manager to determine the amount of fund requirements. # Determination of funds needed: Once the projections are drawn in terms of sales of products, the cost of production, marketing activities, etc., the Finance Manager can draw up a plan as to the fund requirement based on the time factor. He can know whether the funds are to be procured on a short term basis or on a long term basis. # Forecast the availability of funds A company will have a steady flow of funds. If the manager is able to forecast these amounts properly, then the moneys to be borrowed can be reduced, thus saving on the interest payments. # Establish and maintain control system: Control system is ineffective without adequate planning and the adequacy of planning can be gauged only through proper control measures. Both these activities are essential for effective utilization of funds. # Develop procedures: Procedures should be developed for basic plans how they should be achieved.