Question

Explain the factors affecting the formulation of a financial plan.

Answer 1

Answer:

There are three major factors to consider when creating your financial plan they are sales, costs or what other people may call revenue and expenses as well as profits/losses. These are the three drivers that dictate what is included in your cash flow forecast and profit and loss account.

Explanation:

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Answer 2

Factors affecting the formulation of a Financial Plan are :-)

• Objectives - The main objectives of financial planning are to raise funds at a reasonable cost and utilize them in the best possible manner.

• Requirements of the Enterprise - Provision of or various contingencies, replacement of assets, and growth and diversification of business enterprise must be made.

• Economy - Capital structure should be such as to create an appropriate balance between the cost of funds and the company’s ability to pay.

• Solvency and Liquidity - Funds should be invested in those ventures which are likely to give sufficient return on investment.

• Flexibility - Financial planning should ensure flexibility allow the diversion of funds into more profitable channels & also make provision for raising of additional funds at a short period of time.

• Optimum Capital Structure - An optimum mix of equity shares, preference shares and debentures must be checked while raising funds to form different resources.

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