It involves the preparation of a financial blueprint of an organisation. It is the process of estimating the fund requirement of a business and determining the possible sources from which it can be raised.
Financial planning includes:
(i) Determination of amount of finance needed.
(ii) Determination of sources of funds.
(iii) Determination of suitable policies for proper utilisation of funds.
The objective of financial planning is to ensure that enough funds are available at right time.
Objectives of Financial Planning:
(i) To ensure availability of funds whenever required: Includes proper estimation of the funds required for different purposes (long term assets/ working capital requirement). There is a need to estimate the time at which these funds are to be made available. Financial planning also tries to specify possible sources of these funds.
(ii) To see that the firm does not raise resources unnecessarily: If excess funds are available, it will unnecessarily add to the cost and may encourage wasteful expenditure.