Financial planning and its advantage & limitation.
Financial planning and its advantage & limitation.
* Financial planning is the task of determining how a business will afford to achieve its strategic goals & objectives .
* It create on the basis of vision and objective .
* It establish & maintain a system of financial control governing the allocation and use of fund .
* First it establishing objective than create policies and than formulate procedures after that it bring flexibility in three of them to adjust according to situation .
--> Advantages of financial planning
1) Cost control
* Create annual budgets
* Analyse big expenses , reduce them if necessary and monitor them .
2) Cash flow management
* Identifying in advance your cash need each month , regardless of your revenues .
* Slow pay bales or bad debt when you need money then it raise problem to operate business .
3) Raising financing
* raise fund according to need of firm such as short term , medium term , or long term
4)Facilitate pricing of product
* How much a business will swap ( Exchange ) for its product .
* Pricing has a direct relationship with demand and supply of a product
* Willingness or financial capability to buy product .
5) Managing assets
* To maintained to avoid any breakdown ( failure )
* Make investment in assist .
6) Miscellaneous importance
* Strategy to reduce the cash Ex- not giving increment to employees by not upgrading technology etc .
* Wait for a favorable exchange rate .
--> Limitation of financial planning
1)Difficulty in forecasting
* According to expected situation in future .
* Forecasting become more difficult because future is always uncertain .
2) Difficulty in change
* The environment of business is continuously fluctuating such as price of labour , machinery , raw material cost .
3) Problem due to rapid change in environment
* Rapid change in method of production , consumer preference
* Financial decision cannot be reversed .
4) Dependence on co-ordination
* Lack of communication or co-ordination among different officials and department can lead to failure of financial plan
* Financial planning is the task of determining how a business will afford to achieve its strategic goals & objectives .
* It create on the basis of vision and objective .
* It establish & maintain a system of financial control governing the allocation and use of fund .
* First it establishing objective than create policies and than formulate procedures after that it bring flexibility in three of them to adjust according to situation .
--> Advantages of financial planning
1) Cost control
* Create annual budgets
* Analyse big expenses , reduce them if necessary and monitor them .
2) Cash flow management
* Identifying in advance your cash need each month , regardless of your revenues .
* Slow pay bales or bad debt when you need money then it raise problem to operate business .
3) Raising financing
* raise fund according to need of firm such as short term , medium term , or long term
4)Facilitate pricing of product
* How much a business will swap ( Exchange ) for its product .
* Pricing has a direct relationship with demand and supply of a product
* Willingness or financial capability to buy product .
5) Managing assets
* To maintained to avoid any breakdown ( failure )
* Make investment in assist .
6) Miscellaneous importance
* Strategy to reduce the cash Ex- not giving increment to employees by not upgrading technology etc .
* Wait for a favorable exchange rate .
--> Limitation of financial planning
1)Difficulty in forecasting
* According to expected situation in future .
* Forecasting become more difficult because future is always uncertain .
2) Difficulty in change
* The environment of business is continuously fluctuating such as price of labour , machinery , raw material cost .
3) Problem due to rapid change in environment
* Rapid change in method of production , consumer preference
* Financial decision cannot be reversed .
4) Dependence on co-ordination
* Lack of communication or co-ordination among different officials and department can lead to failure of financial plan
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