All the people running businesses or even those in any other work or job and making money, know the value of financial management. Being able to make money in the present time is still not that difficult compared to keeping the expenses and budget under control. It takes a lot of planning and management to keep the business running smoothly and not falling short of money when one needs it. It is the most important aspect, especially for businesses. Be it a startup or an existing business; Everything you need to know about financial management is a must. To understand what it is and why it is so important, read on.
What is financial management?
It is the strategic planning, directing, organizing and controlling all the financial undertakings in a streamlined manner in the company or an organization. Financial management also includes the application of the management principles to the organization’s financial assets. It plays a very crucial role in fiscal management, as well.
Key objectives in financial management
There are several objectives as this process is an umbrella term and includes several tasks and goals under it. However, the following are the basic key objectives of Everything you need to know about financial management:
- To make sure that the firm or organization has enough funds and the supply of funds is enough.
- Making sure that the shareholders get a good return from the organization on the investments they make.
- The utilization of the funds should be done with the utmost efficiency and planning to be spent in an optimum manner.
- One should try to create safe and full-proof investment opportunities to gain investors and get them to invest in the company or the institute.
Elements of financial management
Financial management is made up of some elements as well. The constituents that combine to form this process make up a huge part of Everything you need to know about financial management, and they are the following:
This helps in calculating the capital required by the firm or organization. There is a certain amount of budget required to dive into the new project or keep things going smoothly. This process takes care of estimating and determining the allocation of the capital.
Making a financial plan consists of several objectives in itself. They are:
- To determine the estimated amount of capital required by the company or organization.
- To determine the structure of capital and capital organization.
- To frame the regulations and financial policies of the company or organization.
This is the next and a key part of Everything you need to know about financial management because it helps assess whether the company or organization is meeting its objectives and goals. In a way, it is the measurement of how successful the work of the organization is turning out to be. Financial control helps in finding the answer to the following questions about the firm:
- Is the organization using all the available assets competently?
- Are the assets of the organization secure?
- Whether the management is turning out to be in the best interest of the organization financially, also, it checks whether it is bearing the desired profits for the key stakeholders as well. Making sure the profit keeps going is also a key part of Everything you need to know about financial management. Nobody would invest in a company or an organization that is not bearing profit.
Financial decision making
The decision to make investments and financing is crucial for the firm’s success and needs to be taken with utter planning and surety. This process is mostly taken care of by a separate department. It includes how the company or organization would raise the finance, how the profit would be distributed among the investors and whether the new shares should be sold or not etc.
Mostly, the department of financial management is handled by a financial manager. Every firm or organization has one or the other manager for the same so that somebody is putting all the time, efforts and focus in this process ascertaining the importance it holds. Also, the manager should be familiar with Everything you need to know about financial management to ensure he or she is the best fit for the job.
The functions of the financial management department
As mentioned earlier, there is a separate financial management department with a financial manager that ensures all the management functions keep going smoothly. The following are the functions that the manager and the department should take care of:
Calculating the required capital
The financial manager is supposed to calculate and estimate the number of funds required by the firm or the organization. This process depends on the firm’s policies, the profits being made by it, and the organization’s expected expenses. This process is needed to be done in such a way that it boosts the earning capability of the firm. Hence, the managers need to know Everything you need to know about financial management so that they can do the job for you.
Formation of the structure of capital
After estimating the amount of required capital, the next step is forming the organization’s capital structure. This process includes debt-equity analysis. It can be done for the long or short term. This depends upon the amount of capital that the company owns and the amount it needs as a raise via external sources to meet the expenses and goals of the project or firm.
Investing the money or capital
To get the return or profit, one needs to invest and invest smartly. After planning the smart capital structure, Everything you need to know about financial management is that it is time to pull up the socks and invest. The firm needs to invest the capital, which, in turn, helps in getting regular returns or raising more capital. This is why the manager needs to make the right decision because, in a way, he is solely the in-charge of whether the organization would be able to fund in a profitable and safe venture or fail to do so.
Allocation of the profit made
Once the firm or organization has made a great profit, the financial manager has to allocate it efficiently. This process involves several small jobs like innovations, keeping a part of the gained net profit for contingency, providing dividends to the investors or the shareholders and even expansion.
Effective money management
The department of effective management of money is responsible for managing the money of the firm effectively. To do the job right, Everything you need to know about financial management is what is at stake. The firm has several expenses and spends money on various things like payment of bills, giving salaries of the workers, maintaining stocks, purchasing material and equipment, meeting liabilities and several other purposes. It is very important to manage and plan how to spend money to be sure one doesn’t lack anywhere.
The financial manager is a very responsible and accountable person. The reason for choosing the right man for the job is that the job is tedious and multi-dimensional. The manager has to not only plan, organize, and obtain the funds but also control and analyze the firm’s finances. This is done either short-term or long-term with the help of various financial tools like ratio analysis, financial forecasting tools, risk management tools and the profit and cost control tool. The manager must have some of the other tools up his or her sleeves at the right place and the right time to tackle the problems approaching in the workplace.
Why is financial management important?
The management of finances and capital plays a vital role in the working of an organization. Everything you need to know about financial management, the very important thing is to know the critical role and importance of financial management and the financial manager. They are:
- It helps in the financial planning that makes sure that the working of the firm goes smoothly.
- It assists the company or the firm in the acquisition and planning of funds.
- It aids the organizations in effectively utilizing the allocated funds- acquired or received from external sources.
- It helps the company or firm to make critical decisions regarding the finances.
- It aids in improving the organizations’ profitability.
- It boosts the overall value of the organization or the firm.
- It helps the company in obtaining economic stability.
- It helps the employees of the organization work smartly, saving money and, in this way, it aids in the personal financial planning of the employees and the firm’s financial management.
- It prepares the company or the firm to tackle the obstacles in a better-prepared manner and not crumble on facing petty issues.
Why should one study financial management?
There are several benefits regarding the courses offered to the aspirants. Similarly, for those interested in financial management, Everything you need to know about financial management is that there are courses for you. However, the edge these aspirants get is that the financial management course comes with a huge demand in terms of practicality and work. Every company or business requires it in every nook and corner of the world. Where there is money, there is a need for financial management. The following are the reasons behind opting for financial management courses and studying it:
- Diverse career opportunities: Quoting the fact, as mentioned earlier, where there is money, there is a need for financial management. Studying financial management courses opens us with a variety of career opportunities and diverse options for jobs. There are openings in both the public as well as private sectors. The career options include financial analysis, investment banking, entrepreneurship, managerial and financial accounting, and strategic financial management. Also, for those who are thinking about kick-starting a new business, this course comes in handy and is very helpful. Holding a degree or a course in financial management gives people the edge to get promotions, and they are more likely to score better accounting jobs than the others.
- Improves interpersonal skills: This course helps in building better communication skills and teamwork skills. It teaches people how to build better relationships with colleagues and results in an overall healthier work environment.
- Building personality: This course helps in improving soft skills. People wishing to work in this sector are either extroverts or become extroverts to stay in the competition. It takes talking about finances for hours to improve the knowledge, communication and practical aspect of the same. This builds the personality and confidence of people.
- Greater job prospects: According to the BLS i.e., the USA’s Bureau of Labour Statistics, a spike has been observed in the demand of finance manager jobs in the United States. This establishes a growing range of financial products and the need for in-depth knowledge about the geographic regions. The demand for a career in financial management has boosted up by 14%, financial advising by 32% and financial analysis by 23%.
- Higher salary package: The salaries of people working in this sector are high. Both the entry-level, as well as the management level workers, are paid well. The job is always in demand and is considered as a highly-skilled job.
- Career growth: The field is perfect for people who possess knowledge of financial management software and financial management systems as well as own great aptitude skills. Developing professional skills and climbing the ladder of career is always an opportunity for people in this field.
What are the goals of financial management?
- It plays a great role in the financial success of businesses.
- The goals of the strategic and tactical areas of the businesses are also met by financial management.
- The goal is to check the cash flow, profit and the financial condition of the company or the business.
- Evaluation of the performance of the business or the firm.
- Making wise decisions related to investments like capital budgeting and financial plan of the firm.
- Implementation of the decisions wisely and in an organized manner.
- Streamlining the whole incoming and outgoing of the capital.
- Setting clear goals, utilizing resources effectively, deciding the right sources of financing and efficiently making the dividend decisions.
Organize the finances, spend less than the earnings, but the money to work, limit the debt to income-producing assets, continuously educate oneself, understand the risks involved, diversify, maximize employment benefits, pay attention to taxes and efficiently plan for the unexpected with financial management.