Question

how does long term financing planning support the goal of the financial manager

Answer 1

The primary and long term goal of a financial manager is to help the organization maximize its profits and be financially strong. In order to achieve his primary goal, he has to fulfill the following objectives:

1. Ensuring availability of funds: A finance manager must understand the areas where the areas from where funds can be generated as and when required by an organisation, be it for short term or long term. A proper analysis of the source of the funds and related costs and liability should be done. While raising the required funds, the finance manager needs to keep in mind that the capital structure of the company is not affected. Long term financial planning thus helps in ensuring that the organisation never falls short of funds.

2. Cost containment: Another aspect of financial management is to keep the expenses as close to its budgeted amount. For this the financial manager creates budgets and conducts variance analysis. The manager can do so by implementing cost cutting measures, setting up spending levels, evaluating the possibilities of outsourcing the non-primary activities, etc. Long term financial planning of the expenses and the causes of variances can help manager in containing the costs to its estimated amounts and thereby maximizing the profits.

3. Creating an emergency fund: Every business is prone to risks, and the impact of such risks can be minimized by proper financial planning. The finance manager has to evaluate the business of the organisation and has to quantify the risks faced by it. The quantification of such risks can help the finance manager to create an emergency fund in case the business is impacted by such risk. This helps the organisation to minimize the impact and keep functioning smoothly in times of emergencies.

4. Investments: Using the excess funds to reap the maximum benefits is the sign of a successful financial manager. Idle excess funds of an organisation can be invested in profitable projects or investments. An in-depth study of the prospects, the costs, the benefits help the organisation to grow and be profitable.