When I started on my journey in the Army and later post hanging my boots in the civvy street, I realized that Financial education was an important part of the process. When I was working, my only concern was about my salary and my mindset was how can I increase my income. I really couldn’t think beyond that and was looking for avenues to increase my returns on investment. The problem with investment and ROI is that it is driven by fear and greed, and both have the power to overwhelm the ability to think logically. Therefore understanding finance and its management are extremely crucial for business survivability.
Financial management is one of the important responsibilities of owners and business managers. It helps understand the consequences of their decisions on profits, cash flow, and the financial health of the company. Most startups encounter initial negative cash flows during early periods. Financial management is extremely crucial for growth during this period. The entrepreneurs must be knowledgeable about the burnout rate and the capital needed to keep the business proposition profitable.
Financial management refers to the strategic planning, organizing, directing, and controlling of financial undertakings in an organization or a startup. It also includes applying management principles to the financial assets of an organization, while also playing an important part in fiscal management. Take a look at the objectives involved:
Maintaining enough supply of funds for the organization;
Ensuring shareholders of the organization get good returns on their investment;
Optimum and efficient utilization of funds;
Creating real and safe investment opportunities to invest in.
Financial management includes the following element -
Financial planning - is the process of calculating the amount of capital that is required by an organization and its allocation. The financial plan includes certain key objectives, which are -
Determining the amount of capital required;
Determining the capital organization and structure;
Framing of the organization’s financial policies and regulations.
Financial control: This is one of the key activities in financial management. Its main role is to assess whether an organization is meeting its objectives or not. Financial control answers the following questions:
Are the organization’s assets being used competently?
Are the organization’s assets secure?
Is the management acting in the best financial interests of the organization and the key stakeholders?
Financial decision-making: This involves investment and financing with regard to the organization. This department takes decisions about how the organization should raise finance, whether they should sell new shares, or how the profit should be distributed.
Now it is important to understand the importance of Financial Management. Let’s take a look at some of the reasons -
Helps organizations in financial planning;
Assists organizations in the planning and acquisition of funds;
Helps organizations in effectively utilizing and allocating the funds received or acquired;
Assists organizations in making critical financial decisions;
Helps in improving the profitability of organizations;
Increases the overall value of the firms or organizations;
Provides economic stability;
Encourages employees to save money, which helps them in personal financial planning.
The next thing is to understand the importance and benefits of financial management, let’s quickly move to see in greater detail why financial management is crucial for businesses to achieve success -
- One of the most common reasons for businesses to fail is due to the unavailability of an accurate, and comprehensive financial plan, which makes them fall prey to various financial mistakes like overestimating revenue or being left with a negative cash flow. The financial management process in essence identifies financial opportunities and risks to help business executives stay informed and make better financial decisions focusing on strengths weaknesses.
- one of the key responsibilities of the financial management process is to identify safe, secure, and profitable investment opportunities for businesses to ensure regular injection of capital. Without a definite financial plan to raise capital, investors and lenders will be unwilling to invest in your business. Alternatively, with a definite business plan, businesses get to improve their reputation with investors by offering them detailed insights about how they will be raising capital for the business.
- A successful business isn’t all about raising capital, rather it also involves optimizing the expenses against the sales targets, investing profits wisely, and avoiding taxation and bank charges. The best way to optimize business expenses is by having a clear understanding and visibility of the finances. With the right financial management solution, businesses are able to create effective strategies to minimize expenses and identify saving possibilities.
- Businesses need to know their starting point to be able to measure success. With robust financial planning, businesses are able to quantify their performance by measuring them against the set benchmarks/indicators, thereby enabling help to optimize strategies for future growth and expansion.
- With accurate financial management services, businesses are not only able to measure success, but also identify areas of weaknesses. This in turn helps them to optimize lowly performing business areas and take necessary measures for improvement.
- Financial management helps businesses to improve their understanding of market trends. By keeping business executives informed of the high-performing and low-performing areas, financial management enables them to identify market patterns, and improve their financial decision-making capabilities. The financial management process also helps business executives to improve their understanding of marketing strategy by monitoring effective strategies and identifying hemorrhaging strategies.
With such high stakes and significance, the best way for businesses to keep up with their finances is to hire the services of professional financial management experts. With so much already on the shoulders of the in-house team, it’s always better to get on board a professional consultant that brings the outside perspective, as well as, cutting-edge tools and industry experience to help better manage your finances and transform your business into a success story.