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Features of a good financial plan
- Simplicity
The financial plan of a business should be as simple as possible. By 'simplicity we mean that the plan should be easily understandable to all and it should be free from complications, and/or suspicion-arising statements. At the time of formulating capital structure of a business or issuing various securities to the public, it should be borne in mind that there would be no confusion, in the mind, of investors- about their nature and profitability.
- Foresight
The planner should always keep in mind not only the needs of today but also the needs of tomorrow so that a sound financial plan may be formed. Capital requirements of a business Can be estimated by the scope of operations and it must it must be planned in such a way that need for capital may be predicted as accurately as possible. Although, it is difficult to predict the demand of the' product yet it cannot be an excuse for the promoters to use foresight to the b advantage in building the capital, structure of the company
- Flexibility
The financial structure of a company must be flexible enough to meet the capital requirements of the company. The financial-plan should be chalked out .in such a way that both increase and decrease in capital may be feasible. The business may require additional capital for financing scheme of modernization, automation, betterment of employees etc. It is not difficult, to increase the capital. It may be done by issuing fresh shares or debentures to the public or raising loans from special financial institutions, but reduction of capital is really a ticklish problem and needs statesman like dexterity.
- Intensive use
Effective use of capital is as much necessary as its procurement. Every person should be used properly for the prosperity of the enterprise. Wasteful use of capital is as bad as inadequate capital. There must be =fair capitalization‘, i.e., company must procure as much capital as requires nothing more and nothing less. Over-capitalization and under capitalization are both danger signals. Hence, there should neither be surplus nor deficit capital but procurement of adequate capital should be aimed, at and every effort be made to make best use of it.
- Liquidity
Liquidity means that a reasonable amount of current assets must be kept in the form of liquid cash so that business operations may be carried on smoothly without any shock to them due to shortage of finds. This cash ratio to current ratio to current assets depends upon a number of factors, e.g. the nature and size of the business, credit standing, goodwill and money market, conditions etc.
-Economy
The cost of capital procurement should always be kept in mind while formulating the financial plan. It should be the minimum possible. Dividend or interests to be paid to shareholder (ordinary and preference) should not be a burden to the company in any way. But the cost of capital is hot foe; only criterion, other factors should also be given due importance.
marto answered the question on January 30, 2019 at 10:21
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