Finance in relation to business is concerned with the task of providing funds needed by the enterprise in terms that are most favorable in the light of its objectives. The finance function of a business is concerned with procurement of funds and its effective utilization in business. It covers financial planning, forecasting of cash receipts and disbursements, realizing of funds, using and allocation of funds and financial control. Financial planning helps in defining financial goals, setting objectives and developing a plan to achieve them. Planning is not master-minding the future, and any attempt to do so is foolishness. Human beings can neither predict nor control the future. For this reason, management has to clarify their objectives and determine what actions must be taken, when, by whom, and at what cost to achieve the cherished goals. Financial planning is the process of evaluating different investing and financing opportunities available to a firm and selecting the best one from the available options.

The planning requires a long-term estimate of profits which in turn involves a projection of sales and costs of operation for a period of years. Accordingly, long range financial planning becomes essential for a company that wishes to grow. The company has to establish objectives and goals as part of a master plan for long range survival and growth. Coordinated thinking forms the basis of financial planning for making an optimum utilization of funds, particularly of cash balances.

Unneeded cash can be invested in income-producing securities. Financial planning is used as a control device to fix standards of performance and evaluation of the results. It is used to pre-test the financial feasibility of various programs and in that sense it is of crucial importance because action once taken becomes difficult to retract.

Author: Elizabeth Morgan

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