What Is Financial Management?
Money is sometimes called the backbone of the business. In other words, cash is one of the current assets of the business. It is very essential for the business to keep it going. Any organization should always keep a sufficient amount of money to keep its obligations functional. So the management of money is called financial management.
The shortage of money will hamper the operation of the whole organization and excess of it will be unproductive. We have seen many fundamentally sound businesses fail because of improper management of money.
Profits indicate more of a commercial organization whereas losses indicate failure Bosh’s profit and losses are judged from the profit and loss statements.
These statements are usually prepared by the end of the year. No financial management needs more frequent and almost daily decision-making. Cash is the most unproductive of all assets.
Controlling and tracking the assets of an individual or any company comes under financial management. Planning for budgeting and investing organizational assets for specific goals refer to the company’s money strategy. This is a very broad concept to follow.
While fixed assets like machinery, plant, and current assets such as inventory will help the business in increasing its earning capacity, cash in hand will not add anything to the concerns It is in this context that financial management has assumed much importance.
Importance of financial management in business growth
The following are the main motives for which the concern needs money.
1. Transaction Motive payments
In business development, transactions have a vital role to perform certain aspects of the profit. Transaction management keeps checks on the inflow and outflow business supply chain, which is essential to keep alive during the development of the business. Monetary policies can be implemented by viewing the transaction flow charts.
All the payments which are to be made to the vendors indicate business growth at the raising stage.
2. Prevention Motive of the organization
Any Commercial organization is required to keep the money for the purpose of meeting contingents. Though each receipt and disbursement are anticipated, there are variations in these estimates.
For example, a debtor who was to pay after 6 days and informed of his ability to pay, on the other hand, a supplier who used to give credit for 25 days may not have the stock to supply or give credit. In these situations, cash payments are more than cash receipts. Such contingencies arise in business.
A firm should keep some money for meeting such contingencies.
Factors of financial management | financial management deals with the following aspects :
- Money inflows and outflows.
- Money flows within the firm.
- Money balances are held by the firm at a point in time.
financial management needs strategies to deal with various facts about money.
Following are some of its aspects.
Money planning involves the technique to plan and control the use of money. Keeping the future activities, the statement for business assets can be prepared by forecasting the business inflows and outflows. Finance management having cash inflows determine various activities for controlling the outflow of the assets.
Money predicting and budgeting
The cash budgeting term is used to estimate the control of the receipts and payment records in the business value.
Though it is not possible to make exact forecasts even then estimates of cash flows will enable the planner to make arrangements for money needs.
In a similar way, long-term estimation of cash is also necessary. Both short-term and long-term cash forecasts may be made with the help of the following methods.
( a ) Inflow and Outflow Method.
( b ) Adjusted net income Method.
( c ) Inflow and Outflow Method.
In this method, the inflow and outflow of cash are estimated.
(a) Cash Receipts: The cash receipts may be from cash sales, collection from debtors, sale of fixed assets, receipts of dividends, or other incomes of all the items; it is difficult to forecast sales.
The sales may be on cash as well as a credit basis, Cash sales will bring receipts at the time of sale while credit sales will be the inflow and outflow of money are to be equaled over short as well as long periods.
( b ) Adjusted Net Income Method: This method generally has three sections: sources of cash, uses of cash, and adjusted cash balance.
The produced method of the business valuation methods helps to simulate the supply chain of the business value projection in the organization.
According to the inflow material, statement business needs are projected with the outflow chart which is handled by the project management team in the organization. Issuing shares and making decisions for borrowing the raw material costs are assumed by the company goals. The business statement depreciation is decided by the outdoor activities of the project management.
This method helps in keeping control of working capital and anticipating financial requirements.
What are the five basics of financial management?
1. Formation of money management.
2. Consistency in development goals
3. Ready plans for meeting undesired activities
4. Project documentation for clear goals
5. Investment without unproductive achievements.
Top strategies for financial management
- Proper management of the organization’s properties for the production chain.
- Keep a check on inflow and outflow business values.
- Constant check on business goal milestones.
- Accomplish the business goals on time.
- To meet business goals, try to raise the business assets for the organization.
- Proper utilization of the profit to uplift the business value.
- Formation of future plans for the stakeholders of the organization.
What is financial management explain?
In short explanation, the term financial management refers to the strategic arrangement of funds or assets of an organization to achieve marked objectives at a particular peak time in business growth.
What is the primary goal of financial management?
This is all about the management of the assets of the organization for continued growth. Money is important for any business, So to proper use of business liabilities is essential for the progress of the organization. All the management strategies come under the goal of financial management.
What is the function of financial management?
The main function of financial management is to streamline the business properties that directly proportion to business progress.
What are the benefits of financial management?
1. Auto management of the company’s assets.
2. Discover new business growth opportunities.
3. Streamline business tasks with human resources.
4. Solve accounting problems during the site audit.
5. Plan business strategies according to financial support.