Its about the financial and profit planning.A firm should be managed effectively and efficiently. This implies that the firm should be able to achieve its objectives by minimising the use of resources. Thus managing implies coordination and control of the efforts of the firm for achieving the organisational objectives.

2. Financial planning indicates a firm’s growth,
performance investments and requirements of
funds during a given period of time, usually three
to five years. It involves the preparation of
projected or proforma profit and loss account,
balance sheet and funds flow statement.

3. Objectives 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.

4. Importance of Financial Planning
Financial Planning is process of framing objectives, policies, procedures, programmes
and budgets regarding the financial activities of a concern. 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 programmes 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 an d profitability in concern.

5. Basic financial planning

6. Profit Planning
“…a series of prescribed steps to be taken to
ensure that a profit will be made.”

8. Need for Profit Planning
To improve management performance.
To ensure that the organization as a whole
pulls in right direction.
To ensure that the objectives should be set which will stretch
but not overwhelm managers.
 To encourage strict evaluation of managers performance in
monetary terms.
 To run company in more demanding way.

9. Choosing budget period
 The annual operating budget may be divided
into quarterly or monthly budgets
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter

10. Budgets provide a means of communicating management’s plans through
the organization.
Budgets force managers to think about and plan for the future. In the
absence of the necessity to prepare a budget, many mangers would spend all
of their time dealing with daily emergencies.
The budgeting process provides a means of allocating resources to those
parts of the organization where they can be used most effectively
The budgeting process can uncover many potential bottlenecks before they
occur .
Budgets coordinates the activities of the entire organization by integrating
the plans of the various parts of the organization. Budgeting helps to ensure
that everyone in the organization is pulling in the same direction.
Budgets provide goals and objectives that can serve as benchmarks for
Advantages of budgeting

11. Limitations of Budgeting:
Whilst budgets may be an essential part of any marketing
activity they do have a number of disadvantages, particularly
in perception terms.
Budgets can be seen as pressure devices imposed by management,
thus resulting in:
a) bad labor relations
b) b) inaccurate record-keeping.
Departmental conflict arises due to:
a) disputes over resource allocation b) departments blaming each
other if targets are not attained.

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CLASSIFICATIONOF BUDGETS
ACCORDING TO ACCORDING TO ACCORDING TO
TIME FUNCTION FLEXIBILITY
1. Long term budget 1. Sales budget 1. Fixed budget
2. Short term budget 2. Production budget 2. Flexible budget
3. Current budget 3. Cost of Production budget
4. Rolling budget 4. Purchase budget
5. Personnel budget
6. R & D budget
7. Capital Expenditure budget
8. Cash budget
9. Master budget

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1. SALES BUDGET:
Sales budget is the most important budget based on which
all the other budgets are built up. This budget is a forecast of
quantities and values of sales to be achieved in a budget
period.
2. PRODUCTION BUDGET:
Production budget involves planning the level of production
which in turn involves the answer to the following questions:
a. What is to be produced?
b. When is it to be produced?
c. How is it to be produced?
d. Where is it to be produced?

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3. COST OF PRODUCTION BUDGET:
This budget is an estimate of cost of output planned
for a budget period and may be classified into –
• Material Cost Budget
• Labour Cost Budget
• Overhead Cost Budget
4. PURCHASE BUDGET:
This budget provides information about the
materials to be acquired from the market during the
budget period.

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5. PERSONNEL BUDGET:
This budget gives an estimate of the requirements
of direct labour essential to meet the production
target.
This budget may be classified into –
a. Labour requirement budget
b. Labour recruitment budget
6. RESEARCH AND DEVELOPMENT BUDGET:
This budget provides an estimate of expenditure to be
incurred on R & D during the budget period.
A R&D budget is prepared taking into consideration
the research projects in hand and new R & D projects to
be taken up.

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7. CAPITAL EXPENDITURE BUDGET:
This is an important budget providing for acquisition
of assets necessitated by the following factors:
a. Replacement of existing assets.
b. Purchase of additional assets to meet increased
production
c. Installation of improved type of machinery to reduce
costs.
8. CASH BUDGET:
This budget gives an estimate of the anticipated
receipts and payments of cash during the budget
period.
Cash budget makes the provision for minimum cash

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9. MASTER BUDGET:
CIMA defines this budget as “ The summary budget
incorporating its component functional budget and which is
finally approved, adopted and employed”.
Thus master budget is a summary of all functional budgets
in capsule form available in one report.
10. FIXED BUDGET:
This is defined as a budget which is designed to remain
unchanged irrespective of the volume of output or turnover
attained.
This budget will, therefore, be useful only when the actual
level of activity corresponds to the budgeted level of activity.

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11. ZERO BASE BUDGETING:
The zero base budgeting is not based on the
incremental approach and previous figures are not
adopted as the base.
Zero is taken as the base and a budget is developed
on the basis of likely activities for the future period.
A unique feature of ZBB is that it tries to help
management answer the question, “Suppose we are to
start our business from scratch, on what activities
would we spent out money and to what activities
would we give the highest priority?”

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12. FLEXIBLE BUDGET:
CIMA defines this budget as one “ which, by recognising
the difference in behaviour between fixed and variable
costs in relation to fluctuations in output, turnover or other
variable factors such as number of employees, is
designed to change appropriately with such fluctuations”.
13. PERFORMANCE BUDGETING:
These days budgets are established in such a way so that
each item of expenditure is related to specific
responsibility centre and is closely linked with the
performance of that standard.

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14. RESPONSIBILITY ACCOUNTING:
Responsibility accounting fixes responsibility for cost control
purposes by establishing responsibility centres namely –
a. Cost centre
b. Profit centre
c. Investment centre
Principles of responsibility accounting are as follows:
1. Fixation of targets for each responsibility centre
2. Actual performance is compared with the target
3. The variances therein are analyzed so as to fix the
responsibility of centres.
4. Taking corrective action.

21. Thank you...