By working together and educating people from various departments about managing firm finances, the importance of financial management can be established. Financial management covers the planning, arranging, directing, and controlling of financial activities, as well as the reduction of financial expenses and the facilitation of investment availability.
The proper management of an organisation’s finances is, therefore, not simply the job of the finance manager; rather, it is everyone’s responsibility in some capacity.
Why is financial management crucial to the functioning of businesses?
Financial management includes both effectively determining returns and managing and rotating the cash invested in the company. Many financial measures, like Profit volume, inventory turnover, debtors and creditors ratio, etc., aid in financial management and lead to relevant financial decisions.
Business goals can only be achieved after competent financial management, according to the financial management cycle. Let’s first comprehend the financial management cycle in order to comprehend financial management more clearly.
Let’s quickly go over each of the aforementioned stages:
- Budgeting and Financial Planning: Financial management is crucial in helping to foresee what the organisation will need. The number of activities a company can perform will depend on the money it has available. Prior to starting production, it’s critical to determine the market demand for the product. The many departments can control their regular and unusual losses thanks to the budgets that have been prepared.
- Resource Acquisition: Following planning and budgeting, businesses must concentrate on resource acquisition. Before beginning operations, obtaining sufficient funding from a variety of sources is a crucial aspect of running a firm. In order to keep the company’s working capital levels at a healthy level, efforts should be made to get financing from sources with the lowest financial costs.
- The utilisation of Funds: It is crucial to make proper and effective use of the resources that have been allotted once the funding from various sources has been distributed. Effective money management can improve a company’s ability to run efficiently. In the early years of the organisation, it helps to increase its net worth.
- Evaluation and Reporting: By assessing the outcomes on a monthly and quarterly basis, financial management enables an organisation to make efficient financial decisions regarding the firm. The organisation’s future is greatly impacted by financial decisions. As a result, financial choices should only be made after carefully examining the reports and having a thorough conversation with the finance team.
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