Business is a vast field that has a multitude of sub-sections which helps the organisation to function efficiently and effectively. Among them is the correct usage and allocation of financial resources which is called financial management.
Every company has to put major emphasis in this department to ensure longevity and meet all its objectives. Read below to learn more about financial management the purpose it serves and its various functions.
What is financial management?
Financial management is a term given to the procedure of planning, organizing, controlling and monitoring financial resources within an organisation. Financial activities within a company have many layers such as procuring funds, risk assessment, usage of funds, accounting and a lot more. Each of these steps has to be carefully undertaken to ensure that money is being used effectively and the company is enjoying strategic growth.
Financial management is applied to financial resources to ensure the efficient functioning of company project and services. If the finances are not managed judiciously then the company can encounter many setbacks and lose traction of its goals.
Objectives of financial management
Proper utilisation of finances is a matter of concern for every business. Through fulfilling these objectives, the financial manager is able to sustain a business and promote its long term growth.
- Increase profitability
The core objective of every business is to earn profits. Only through financial gains can a company measure its success or loss and hence it steers all projects towards profitability. Hence the role of a financial manager is to use their knowledge and learning to get maximum profit by making astute financial decisions.
- Wealth maximisation
The market value of any company share is a reflection of how well the company is performing. Hence, it is important for a financial manager to ensure that shareholders profit from company operations. Wealth maximisation refers to earning and giving maximum dividend to the company shareholders. As the company performs well, its share value in the market increases and that’s the reason why the finance manager aims to increase the shareholders’ value.
- Estimating financial requirements
Understanding financial requirements is an important part of financial management and it is the responsibility of the financial manager to estimate this. They must have a clear perspective on the finance that is required to start an enterprise or run it which includes knowing the fixed and working capital requirements. This objective of financial management is integral to understand that there is no shortage or surplus of finance.
- Maintaining cash flow
One of the main short term objectives of financial management is to ensure continuous and proper cash-flow. This ensures that there are no hurdles faced by a company in managing its day-to-day expenses which can include payment of wages and salaries, paying the bills, purchase of raw materials and other things. With good cash flow, the company can perform well, do large scale purchasing and enjoy a lot of freedom including the ability to expand its operations.
Financial management also ensures that a company is able to survive in a competitive environment. By ensuring that decisions are made wisely, it eliminates scope for unwanted expenditure or anything that can negatively impact a company’s profits.
Financial management is of immense value to the company as it focuses on efficient business operations and regulates financial decision making which is vital to every company. Only through financial management can a company keep track of its continuous growth.