OBJECTIVE OF FINANCIAL PLANNING

Introduction
Usually, a company creates a Financial Plan immediately after the vision and objectives
have been set. The Financial Plan describes each of the activities, resources, equipment and
materials that are needed to achieve these objectives, as well as the timeframes involved.
The Financial Planning activity involves the following tasks:
Assess the business environment
Confirm the business vision and objectives
Identify the types of resources needed to achieve these objectives
Quantify the amount of resource (labor, equipment, materials)
Calculate the total cost of each type of resource
Summarize the costs to create a budget
Identify any risks and issues with the budget set
Performing Financial Planning is critical to the success of any organization. It provides the
Business Plan with rigor, by confirming that the objectives set are achievable from a
financial point of view. It also helps the CEO to set financial targets for the organization, and
reward staff for meeting objectives within the budget set.
The role of financial planning includes three categories:
1. Strategic role of financial management
2. Objectives of financial management
3. The planning cycle
When drafting a financial plan, the company should establish the planning horizon, which is the
time period of the plan, whether it be on a short-term (usually 12 months) or long-term (25
years) basis. Also, the individual projects and investment proposals of each operational unit
within the company should be totaled and treated as one large project. This process is called
aggregation.
In the words of Gerestenbug financial planning includes:
Determination of amount of finance needed by an enterprise to carry out its operations
smoothly.
Determination of sources of funds, i.e., the pattern of securities to be issued.
Determination of suitable policies for proper utilization and administration of funds.
The financial planning begins with determination of total capital requirement. For this the
finance managers do the sales forecast and if the future prospects appear to be bright and
expect increase in sale, then firm needs to increase its production capacity which means
more requirement of long term funds. Higher level of production and increase in sales
will require higher fixed as well as working capital.
After estimating the requirement of funds the next step of financial planning is deciding
how to raise this finance. Finance may be internally generated by the business or capital
may have to be raised from external sources such as equity shares, preference shares,
debentures, loans, etc.
Financial planning is broader in scope as it does not end by raising estimated finance. It
includes long term investment decision. In financial planning finance manager analyses
various investments plans and selects the most appropriate. Finance managers make short
term financial plan called budgets.
Financial planning is the integration of all aspects of your familys finances, including
retirement, tax and estate planning, coupled with investment and insurance strategies. True
financial planning is a process, not a product.
Advice only, fee-for-service financial planners are comprehensive advisors who can help you fit
together all the different pieces of your financial puzzle and dont sell any products whatsoever.
It is estimated there are 150 financial planners (individuals, not companies) providing advice-
only financial planning in Canada, though unlike us, some of these individuals do also sell
products. In contrast, there are 18,000 Certified Financial Planners (CFPs), 25,000 financial
planners and 90,000 financial advisors. That means about 1/6 of 1% of Canadas financial
advisors provide advice-only financial planning and even less are completely independent,
selling only their advice.
For most Canadians, investment advice is the only real financial advice they get. Even tax
planning advice is elusive, given that most peoples accountants simply do their tax return and
nothing more. Advice-only financial planning brings the integration of all areas of personal
finance to the forefront and makes it the sole goal of the client-advisor relationship. True advice-
only financial planning ensures that the planner and their company are compensated solely by
agreed-upon fees paid by the client. This means there are no hidden costs, third party financial
motivations or kick-backs the planner represents the client and only the client. Objectivity is
the name of the game, which is important in a global financial market that can be fraught with
conflicts of interest.
Advice-only financial planning should not be confused with fee-based investment management,
where an investor pays an annual fee to their investment advisor based on a percentage of their
investments. A fee-based approach is simply a way to pay your investment advisor.
Advice-only financial planning keeps advice and potential products separate, so most clients who
work with an advice-only financial planner will also have a separate investment advisor and
insurance agent.
Some people are reluctant to add another advisor to their repertoire. They already meet with their
investment advisor in February to make their RRSP contribution. They meet with their
accountant in April to get their income taxes completed. They have an insurance agent who has
arranged their insurance policies. They have a lawyer who updates their wills and powers of
attorney from time to time. The problem is, even though these various professionals may be great
at what they do individually, collectively, there is often little or no integration of their
recommendations.
Advice-only financial planning fees are charged for comprehensive financial advice and are
based on expertise required, complexity, and time required. Advice-only financial planners are
professionals and charge their fees much like other professionals such as lawyers or accountants.
The fees have nothing to do with a clients income or assets, meaning every client is just as
important as the next, and that our advice is totally unbiased. This is in contrast to the traditional
provision of financial or investment advice, where minimum investment levels apply and
compensation is paid to the advisor based on product choices. It means advice-only financial
planning is accessible by anybody on a completely objective basis.
Whats the return of investment from working with a advice-only, advice-only financial advisor?
Its hard to say, because we never know what were going to find under the hood until we get
started. In many cases, there are explicit returns by achieving goals like better tax efficiency, but
most clients would also tout the implicit benefit of working with a trusted advisor with no
conflicts of interest who can answer many of the questions that others cannot.
Contrary to popular belief, financial planning is not just investing. It is a process. It allows you to
manage your finances in such a way that you link it to your goals. Making a standalone
investment in a life insurance product means nothing if you do not know the amount of cover
you need, or whether the maturity proceeds are adequate, or whether you need a life cover.
The process of financial planning should help you answer three questions. Where you are today,
that is, your current personal balance sheet, where do you want to be tomorrow, that is, finances
linked to your goals, and what you must do to get there, that is, the asset allocation and
investment strategy that will help you achieve your objectives.

Developing a financial plan needs a consideration of various factors. First, your objective or the
purpose for which the investments are being made. The time period, too, is critical, since the
longer the period of investment, the higher is the ability to absorb risks. Also, one of the most
important factors that many of us did not account for earlier is inflation.

Definition
Financial planning is the task of determining how a business will afford to achieve its
strategic goals and objectives.
Financial planning means deciding in advance how much to spend, on what to spend
according to the funds at your disposal.


Objective of Financial Planning
Financial Planning has got many objectives to look forward to:
Determining capital requirements- This will depend upon factors like cost of current and
fixed assets, promotional expenses and long- range planning. Capital requirements have
to be looked with both aspects: short- term and long- term requirements.
Determining capital structure- The capital structure is the composition of capital, i.e., the
relative kind and proportion of capital required in the business. This includes decisions of
debt- equity ratio- both short-term and long- term.
Framing financial policies with regards to cash control, lending, borrowings, etc.
A finance manager ensures that the scarce financial resources are maximally utilized in
the best possible manner at least cost in order to get maximum returns on investment.

Financial planning is done to achieve the following two objectives:
1. To ensure availability of funds whenever these are required:
The main objective of financial planning is that sufficient fund should be available in the
company for different purposes such as for purchase of long term assets, to meet day-to-
day expenses, etc. It ensures timely availability of finance. Along with availability
financial planning also tries to specify the sources of finance.

2. To see that firm does not raise resources unnecessarily:
Excess funding is as bad as inadequate or shortage of funds. If there is surplus money,
financial planning must invest it in the best possible manner as keeping financial
resources idle is a great loss for an organization.
Financial Planning includes both short term as well as the long term planning. Long term
planning focuses on capital expenditure plan whereas short term financial plans are called
budgets. Budgets include detailed plan of action for a period of one year or less.
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Main objectives of financial planning:
1. To Ensure Timely Availability of Finance:
The first objective of financial planning is to make finance available in time. Under it, the
long-term and short-term financial needs are anticipated and then the sources of
availability of finance are located.

2. To Ensure Proper Balance of Finance:
It is always ensured that the balance of cash should neither be in excess nor short. The
balance of cash in both these situations is harmful. For example, if the balance of cash
needed is rupees five lakh but the actual cash balance is ten lakhs, the cash of five lakhs
will remain idle and it will incur loss of interest.

On the contrary, if only rupees three lakh are available instead of rupees five lakh, it will
damage the reputation of the company for not making timely payments.

In short, it can be said that the objective of the financial planning is to make finance
available in appropriate quantity and make it available well in time.

The main and foremost objectives of financial management are to maximize the wealth of equity
shareholder.The financial manager in a company makes decisions for the owners, i.e., the
shareholders of the firm. He must take such decisions which will ultimately prove gainful from
the point of view of shareholders and shareholders gain only when the price of their share
increases in market.So financial decision which results in increase in value of share is considered
very efficient decision. On the other hand, the financial decision which brings fall in the value of
equity share is considered poor decision.
This objective of maximizing the wealth of equity share automatically fulfills many other
objectives. As equity shareholders get share from residual income only, i.e., they are given
dividend only after the claims of suppliers, employees, lenders, creditors and any other legitimate
claimants. Therefore, if the shareholders are gaining, it automatically implies that all other
claimants are also gaining.
The objective of increase in value of equity share does not mean that finance manager should
involve in manipulative activities to bring rise in price. The rise in price must come with the
growth of firm, with increase in profit of firm and with satisfaction of all the parties associated
with the company. With the objective of wealth maximization of equity shareholder.

Following objectives automatically get achieved:
Profit maximization
Maintenance of liquidity
Proper utilization of funds
Meeting financial commitments with creditors.

Elements of Financial Planning

Financial planning involves the following steps or elements:
1. Determination of Financial Objectives:
For effective financial planning, it is essential to clearly lay down the financial objectives
sought to be achieved. The financial objectives should be based on the overall objectives
of the company. The objectives of financial management may be set up in the areas,
namely, investment, financing and dividend.

2. Estimation of Capital Requirements:
Capital is required for various needs of the business. Separate assessment is to be made of
the requirements of fixed and working capital. Fixed capital is needed for acquiring fixed
assets such as land and building, plant and machinery, furniture, etc. It is blocked for a
long time. Working capital is required for holding current assets like stock, bills
receivable, etc. and cash for meeting day-to-day expenses in running the business.

3. Determination of the Kinds of Securities to be issued:
A company can issue equity chares, preference shares and debentures to raise long-term
funds. The types and proportion of securities to be issued should be properly determined.

4. Formulation of Financial Policies:
Financial planning leads to formulation of policies relating to borrowing and lending,
cash control and other financial activities. Such policies will help in taking vital decisions
for the administration of capital and achieving coordination in financial activities.



Importance of Financial Planning

Sound financial planning is essential for success of any business enterprise. Its need is felt
because of the following reasons:
1. It Facilitates Collection of Optimum Funds:
The financial planning estimates the precise requirement of funds which means to avoid
wastage and over-capitalization situation.

2. It Helps in Fixing the Most Appropriate Capital Structure:
Funds can be arranged from various sources and are used for long term, medium term and
short term. Financial planning is necessary for tapping appropriate sources at appropriate
time as long term funds are generally contributed by shareholders and debenture holders,
medium term by financial institutions and short term by commercial banks.

3. Helps in Investing Finance in Right Projects:
Financial plan suggests how the funds are to be allocated for various purposes by
comparing various investment proposals.

4. Helps in Operational Activities:
The success or failure of production and distribution function of business depends upon
the financial decisions as right decision ensures smooth flow of finance and smooth
operation of production and distribution.

5. Base for Financial Control:
Financial planning acts as basis for checking the financial activities by comparing the
actual revenue with estimated revenue and actual cost with estimated cost.

6. Helps in Proper Utilization of Finance:
Finance is the life blood of business. So financial planning is an integral part of the
corporate planning of business. All business plans depend upon the soundness of
financial planning.

7. Helps in Avoiding Business Shocks and Surprises:
By anticipating the financial requirements financial planning helps to avoid shock or
surprises which otherwise firms have to face in uncertain situations.

8. Link between Investment and Financing Decisions:
Financial planning helps in deciding debt/equity ratio and by deciding where to invest
this fund. It creates a link between both the decisions.


9. Helps in Coordination:
It helps in coordinating various business functions such as production, sales function etc.

10. It Links Present with Future:
Financial planning relates present financial requirement with future requirement by
anticipating the sales and growth plans of the company


Sound financial planning is essential for the success of any business enterprise. It will provide
policies and procedures to achieve close coordination between the various functional areas of
business. This will lead to minimization of wastage of resources. Management can follow an
integrated approach in the formulation of financial policies, procedures and programs only if
there is a sound financial plan.

The important benefits of financial planning to a business are discussed below:
Financial planning provides policies and procedures for the sound administration of the
finance function.
Financial planning results in preparation of plans for the future. Thus, new projects could
be undertaken smoothly.
Financial planning ensures required funds from various sources for the smooth conduct of
business.
Uncertainty about the availability of funds is reduced. It ensures stability of business
operations.
Financial planning attempts to achieve a balance between the inflow and outflow of
funds. Adequate liquidity is ensured throughout the year. This will increase the reputation
of the company.
Cost of financing is kept to the minimum possible and scarce financial resources are used
judiciously.
Financial planning serves as the basis of financial control. The management attempts to
ensure utilization of funds in tune with the financial plans.
Finance is the life-blood of business. So financial planning is an integral part of the corporate
planning of the business. All business plans depend upon the soundness of financial planning.


Financial Planning is process of framing objectives, policies, procedures, programs and budgets
regarding the financial activities of a concern. This ensures effective and adequate financial and
investment policies. The importance can be outlined as:
Adequate funds have to be ensured.
Financial Planning helps in ensuring a reasonable balance between outflow and inflow of
funds so that stability is maintained.
Financial Planning ensures that the suppliers of funds are easily investing in companies
which exercise financial planning.
Financial Planning helps in making growth and expansion programs which helps in long-
run survival of the company.
Financial Planning reduces uncertainties with regards to changing market trends which
can be faced easily through enough funds.
Financial Planning helps in reducing the uncertainties which can be a hindrance to
growth of the company. This helps in ensuring stability and profitability in concern.


Sources of Business Ethics

Introduction
Ethics in general refers to a system of good and bad, moral and immoral, fair and unfair. It is a
code of conduct that is supposed to align behaviors within an organization and the social
framework. But the question that remains is, where and when did business ethics come into
being?
Primarily ethics in business is affected by three sources - culture, religion and laws of the state. It
is for this reason we do not have uniform or completely similar standards across the globe. These
three factors exert influences to varying degrees on humans which ultimately get reflected in the
ethics of the organization. For example, ethics followed by Infosys are different than those
followed by Reliance Industries or by Tata group for that matter. Again ethical procedures vary
across geographic boundaries.

Religion
It is one of the oldest foundations of ethical standards. Religion wields varying influences across
various sects of people. It is believed that ethics is a manifestation of the divine and so it draws a
line between the good and the bad in the society. Depending upon the degree of religious
influence we have different sects of people; we have sects, those who are referred to as orthodox
or fundamentalists and those who are called as moderates. Needless to mention, religion exerts
itself to a greater degree among the orthodox and to lesser extent in case of moderates.
Fundamentally however all the religions operate on the principle of reciprocity towards ones
fellow beings!







Culture
Culture is a pattern of behaviors and values that are transferred from one generation to another,
those that are considered as ideal or within the acceptable limits. No wonder therefore that it is
the culture that predominantly determines what is wrong and what is right. It is the culture that
defines certain behavior as acceptable and others as unacceptable.
Human civilization in fact has passed through various cultures, wherein the moral code was
redrafted depending upon the epoch that was. What was immoral or unacceptable in certain
culture became acceptable later on and vice versa.
During the early years of human development where ones who were the strongest were the ones
who survived! Violence, hostility and ferocity were thus the acceptable. Approximately 10,000
year ago when human civilization entered the settlement phase, hard work, patience and peace
were seen as virtues and the earlier ones were considered otherwise. These values are still pt in
practice by the managers of today!
Still further, when human civilization witnessed the industrial revolution, the ethics of agrarian
economy was replaced by the law pertaining to technology, property rights etc. Ever since a
tussle has ensued between the values of the agrarian and the industrial economy!

Law
Laws are procedures and code of conduct that are laid down by the legal system of the state.
They are meant to guide human behavior within the social fabric. The major problem with the
law is that all the ethical expectations cannot be covered by the law and specially with ever
changing outer environment the law keeps on changing but often fails to keep pace. In business,
complying with the rule of law is taken as ethical behavior, but organizations often break laws by
evading taxes, compromising on quality, service norms etc.

A business code of ethics is a series of established principles an organization uses when
operating in business or society. Organizations often develop these codes to ensure that all
individuals working in the company operate according to the same standards. Most individuals
have an internal code of ethics or moral principles they follow in life. A situation one individual
finds ethically reprehensible may not seem so to another individual. Using a code of ethics in
business attempts to create a basic understanding of acceptable ethical behavior to be used when
handling situations involving the company, government agencies and the general public.

Business Owner
A main source for an organizational code of ethics is the business owner. These individuals
choose the ethical stance of their company since they are responsible for all aspects of the
organization. While managers and employees may not agree with the business owner on his
ethical values, the owner may choose to hire individuals who agree with his ethical business
stance. A business owner may also develop an ethical code based on his personal or religious
beliefs regarding how individuals and organizations should operate in business or society.

Organizational Mission
Companies may use an organizational mission statement to create their code of ethics. Once the
business owner or entrepreneur leaves the company or passes on, the organization may be devoid
of its ethical compass. To rectify this situation, current directors or managers may look at the
mission statement and values the organization was started on and develop a code of ethics based
on this information. This source of business ethics allows organizations to create a lasting ethical
code that may be present in the company for years to come. An organizational mission statement
coupled with a business code of ethics may also be used as a training tool for new employees
hired by the company.
Society or Culture
An organizational code of ethics may be created based on the current societal or cultural beliefs
of the country in which the company is based. Many countries have different understandings of
business ethics or morals. An organization may choose to adopt these values as the main source
of its code of ethics in order to maintain societal norms. An organization may also use a business
code of ethics to ensure that it does not alienate the consumers in the nations local economic
marketplace. If the organization develops international business locations, it may need to adjust
its organizational code of ethics to meet global ethical expectations.

Business Ethics
Business Ethics is about:
1. Decision-Making
2. By People in Business
3. According to Moral Principles or Values

1. Decision-Making
Ethical decision-making involves the ability toseparate right from wrong along with
thecommitment to do what is right.

Some factors affecting decision-making:
Issue Intensity
Decision-Makers Personal Moral Philosophy (Moral philosophy involves
systematizing, defending, andrecommending concepts of right and wrong
behavior)
Organizational Culture

8 Steps to Sound, Ethical Decision-Making

1. Gather as many relevant & material facts ascircumstances permit.
2. Identify the relevant ethical issues (consider alt.viewpoints)
3. Identify, weigh & prioritize all the affected parties (i.e. Stakeholders)
4. Identify your existing commitments/obligations.
5. Identify various courses of action (dare to think creatively)
6. Identify the possible/probable consequences of same(both short & long-term)
7. Consider the practicality of same.
8. Consider the dictates and impacts upon your character &integrity.

2. By People in Business
Decision-Maker (Managers)
The moral foundation of the decision-maker matters. Ifhe thinks that by giving
punishments he can take hiswork out but punishment and fear is only effective inthe
short-run. Organizations that have a clear vision,and support individual integrity are
attractive placesof employment.

3. Moral Principles or Values
Values:
Guiding ideas, representing deeply held generalizedbehaviors, which are considered by
the holder, to be of greatsignificance.

Morals:
A system or set of beliefs or principles, based on values,which constitute an individual or
groups perception of humanduty, and therefore which act as an influence or control over
theirbehavior. Morals are typically concerned with behaviors thathave potentially serious
consequences or profound impacts. Theword morals is derived from the Latin mores
(character, customor habit)

Ethics:
The study and assessment of morals. The word "ethics"is derived from the Greek word,
ethos (character or custom).Ethics means working in such manner which is morally right.


Objectives of Ethics
Study of human behavior and makes evaluative assessmentabout that as moral or
immoral (A diagnostic goal).
Establishes moral standards and norms of behavior.
Makes judgment upon human behavior based on thesestandards and norms.
Prescribes moral behavior and makes recommendations abouthow to or how not to
behave.
Expresses an opinion or attitude about human contact in general.

Nature of Ethics
Concepts of ethics deals with human beings only. Human beingscan distinguish right or
wrong, good or evil.
The Study of ethics is a set of systematic knowledge about moralbehavior and conduct.
Study of ethics is a science a socialscience.
Science of ethics (Normative Science): it judges the value of thefacts in terms of ideal
situation.
Deals with human conduct which is voluntary, not forced orcoerced by persons or
circumstances.

Code of Ethics in Business
Responsibilities of Business:
1. Not to do harm knowingly,
2. To adhere all applicable laws and regulations,
3. The accurate representation of their education, training and experience,
4. Active support, practice and promotion of this code of ethics.
Honesty and Fairness:
1. Being honest in serving consumers, clients, employees, suppliers,distributors and the
public.
2. No knowingly participating in conflict of interest without prior notice to allparties
involved.
Rights and Duties of parties:
1. Products and service offered are safe and fit for their intended use,
2. Communications about offered product and services are not deceptive,
3. All parties intend to discharge their obligations, financial and otherwise, in good faith

Characteristics of Business Ethics
Ethical decisions differ with individual perspective of differentpersons. Each person
views the ethical question in terms of hisor her own frame of reference. And this frame of
reference is thepersons own unique value system.

Ethical decisions are not limited only to themselves, but affects awide range of other
situations as well. Similarly, unethicaldecisions do not end in themselves, but have
widespreadramifications.

Most ethical decisions involve a tradeoff between cost incurredand benefits received.
Cost and benefits, profits and socialresponsibilities are different ends of a single
spectrum. All cannotbe maximized simultaneously.

The consequences of most ethical or unethical decisions are not clear. The only certainty
is that somewhere, sometime, somehow, something positive will result from an ethical
decision andsomething negative from unethical one.

Every person is individually responsible for the ethical or unethical decision and action
that he or she takes. Taking an ethical decision cannot be an impersonal activity as it
involves the persons individual unique value system along with his moralstandards.


Ethical decisions are voluntary human actions. A person cannot escape his personal
liability for his crimes citing force of circumstances or pressure.


Sources of Ethics
1. Genetic Inheritance:
The qualities of goodness is a product ofgenetic traits strengthened over time by the
evolutionary process.

2. Religion:
Religious morality is clearly a primary focus in shapingour societal ethics.

3. Philosophical Systems:
The quality of pleasure to be derivedfrom an act was the essential measure of its
goodness.

4. Cultural Experience:
Individual values are shaped in largemeasure by the norms of the society.

5. The legal system:
Laws represent a rough approximation ofsocietys ethical standards.

Golden Rules of Ethics @ Workplace
Body Language
Avoid Creating Disturbance
Trust & Respect for Others Work
Dont Interfere In Others Work
Respect the Privacy of your Co-workers
Avoid Ethnic & Gender Biasness
Improve Your Self Presentation
Avoid Lobbying
No/Least Personal Work During Work Hours
Maintain the balance betweentransparency/openness and confidentiality

Benefits of Ethics
Fostering a more satisfying and productive working environment
Building and sustaining Organization reputation
Maintaining the trust of staff to ensure continued self-regulation
Providing ethical guidance for employees prior to makingdifficult decisions
Aligning the work efforts of employees with the Organizationsbroader mission and
vision
Increased employee loyalty, higher commitment and morale aswell as lower staff
turnover
Attraction of high-quality staff
Reputation benefits (customers and suppliers)
More open and innovative culture
Decreased cost of borrowing and insurance
Generation of good-will in the communities in which thebusiness operates