Financial management is one of the most important components in building and sustaining a business. If a company is not able to keep their funds and assets in order and up to date, it can be detrimental to its success.
What is financial management?
Before looking at what the purpose of financial management is, it’s worthwhile knowing exactly what is involved in the industry.
A financial manager takes on all responsibilities related to the financial endeavours of a company. This includes all steps from planning and investment options to strategic budgeting and continuity. Financial management is essentially the control of the financial component making up a business with the intention of making as big a profit as possible, while spending the least possible amount.
What are the basic objectives in financial management?
Looking after the financial ecosystem in a company is a major undertaking with many important tasks and processes involved. Often there is an entire department dedicated to looking after the funds and assets in a business, which means having the ability to work as a team is just as important as being able to crunch numbers.
Planning
Anyone in any field of management knows that “failing to plan is planning to fail”.
The process of drawing up strategies before committing financial assets is crucial in business so that money is not squandered.
If a proposed cash-flow plan is in place, it makes planning for present and future development easier. This means any budgeting is already set-up, which ensures that money is allocated before it leaves the business, which helps to alleviate problems of debt.
Financial planning also includes sourcing funds, such as holding investment rounds or taking out any loans, which can then be used to grow the business with the intention of producing enough revenue to either pay back loans or turn profit to develop the business further.
Storing the funds is a long-term part of financial planning. The ideal plan to store assets is one which involves earning, such as investing funds which passively grows.
Communicate information
One of the major responsibilities in financial management is breaking down and communicating relevant and important information to internal and external stakeholders. The pertinent information should be shared every month, quarter and year. This helps to ensure that the accountants are provided with the correct information on time. Regular updates also provides investors with information showing the financial performance of the business.
Risk management
“High-risk, high-reward” means that a financial manager has the possibility of making or breaking a business’ financial state. Putting funds in a low-risk investment means that there is more of a guarantee of making back money, but the profit might not necessarily be a large sum. Using a high-risk investment strategy can yield a lot more money, but also might mean losing out if things turn south. The financial manager holds the key to discovering which sort of investment is suitable for an individual or a company.
As well as being able to manage the risk of a company in terms of asset investment, the financial manager also is responsible for risk mitigation. Being able to put methods in place to reduce risky activity, such as fraud or embezzlement, is key to prevent financial accidents which could leave to failure. Having insurance schemes can ensure that the business will survive should anything bad happen. It’s up to the financial manager to know which ones are well suited for the company.
Eager to learn
Finding new ways to complete tasks is an important aspect in any sort of managerial position. With new strategies emerging and technology constantly evolving, it’s highly recommended to stay updated with improved systems and techniques to manage a company’s finances efficiently. Taking a short course in financial management is one way of gaining theoretical insight which can then be applied practically.
