Which of the following is NOT a reason why financial planning is important in a business?
Answer & explanation
Correct answer: option 4
The correct answer is option 4- It makes an attempt to separate the present from the future.
Financial Planning does not make an attempt to separate the present from the future. It tries to link the present with the future.
Financial planning is essentially the preparation of a financial blueprint of an organisation’s future operations. The importance of financial planning can be explained as follows:
- (i) It helps in forecasting what may happen in future under different business situations. By doing so, it helps the firms to face the eventual situation in a better way.
- (ii) It helps in avoiding business shocks and surprises and helps the company in preparing for the future.
- (iii) If helps in co-ordinating various business functions, e.g., sales and production functions, by providing clear policies and procedures.
- (iv) Detailed plans of action prepared under financial planning reduce waste, duplication of efforts, and gaps in planning.
- (v) It tries to link the present with the future.
- (vi) It provides a link between investment and financing decisions on a continuous basis.
- (vii) By spelling out detailed objectives for various business segments, it makes the evaluation of actual performance easier.