August 30

What Does Financial Management Mainly Focuses On?

0  comments

One of the most important aspects of any organization or business is finance. So having a good knowledge of how to effectively manage finance will help in running a successful business or organization. 

Financial management is the process that involves managing a company or organization’s financial resources. This is through strategic planning, controlling, organizing, risk assessment and monitoring to achieve organizational goals.

Effective use of business funds is very important as it can affect every other department if not properly used. So firms must ensure putting in place a proper financial management system to avoid anything that might hinder the growth of their business.

Importance of Financial management

The importance of financial management cannot be overemphasized. It helps to improve the profitability of an organization. It helps organizations to make good financial decisions and improve the overall value of organizations 

Objectives Financial Management

Every organization, firm, or business has goals and they have to implement some management strategies to achieve their desired growth.

Also, Read – 4 Keys to Excellent Web Design for Your Business

Efficient usage of allocated funds: every organization wants to maximize their profits by ensuring there is no wastage or mishandling of funds.  Close monitoring of allocated funds must be in place and ensuring its use for the purpose it was given.

Profitable investment: be it a long-term or short-term investment, the person or department in charge of finance wants to make sure the investment is safe and profitable to the business.

Business growth and survival: the growth and survival of a business are very important. This is why some organizations hire a financial manager to help them make proper financial decisions.

Sufficient and steady fund: an organization embarking on a particular project must ensure there is a sufficient and steady supply of funds and it should be readily available for the department handling the project.  

Scope of Financial Management

When we study the financing, dividend and investment decisions, it will help us to understand the scope of financial management.

Financial decisions

Organisations need to raise finance from different sources. Whether it is for working capital which is a short-term source or capital structure which is a long-term source. Financial decisions are of two types namely financial planning decisions and capital structure decisions.

Also, Read – 5 Ways to Improve Your Business Process Management

You may Also Like :  5 Things Ecommerce Businesses Need To Know About Sales Tax Nexus

Financial planning decisions involve estimating financial needs and the application of funds. While capital structure decisions involved recognizing sources of funds.

Dividend decisions

It involves deciding on the percentage of profit that goes to the shareholders and the percentage that is retained for business needs. This is a decision the financial manager or department handling finance have to make.

Investment decisions

It includes investment in capital budgeting and working capital. Capital budgeting which is also called long-term investment is the commitment of funds for a long period such as fixed assets. 

Work capital or short-term investment is the kind of fund that is committed for a short period.  

Financial Management Functions

Financial control: various techniques should be used to analyze the company’s growth by the financial manager apart from planning, utilization and procurement of funds.

Fund investment: the financial manager must ensure that funds are allocated in profitable investments that will bring financial growth to the business. And there should be a comparison and balance between the fund invested and its returns. And also to improve areas of the business that are giving high returns.

Financial planning

Planning and estimation of the financial needs of a business is part of what a financial manager does. Also should be able to estimate the cost of buying an asset and the amount that could be spent on working capital.

The possible financial needs that may arise and the means of raising the funds should also be put into consideration by the financial manager.

Maintain liquidity

The business needs cash to tackle some financial needs like payment of salary, purchase of materials and other things. This makes cash to be one of the best ways of maintaining liquidity. The financial manager needs to ensure there is no scarcity of funds in the business.

Disposal of surplus

To increase the financial growth of a business, there is a need for a profitable investment. Decide on the profit and sell off surplus assets.

Determination of capital composition

When a proper estimation and planning has been made there is a need to decide the capital structure. It involves the analysis of both debt and the equity used to finance the future investment of a company.

Conclusion

Financial management is a very important aspect of any business or organization that aims to make a profit and survive. Effective utilization and allocation of funds in an organization is possible through financial management.  A good financial manager must be able to minimize the cost of procuring finance and its effective use. And the application of finance basics management principles to your business will help you a lot.

 

You may Also Like :  What is Employee Health and Why it Matters to the Organization?

Tags

You may also like

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}