One of the essential aspects of a business is financial management. You’ll need exceptional money management skills to establish or even operate a successful firm.

Financial management is the sector or function of an organization that deals with earnings, expenses, cash, and credit for the “organization to have the resources to carry out its aim as efficiently as possible.”

Financial Management Objectives

• Financial management is concerned with purchasing, allocating, and controlling a company’s financial resources. Ensuring a consistent and adequate supply of finances to the organization could be one of the goals.

• To give sufficient returns to shareholders, this should be defined by earning capacity, stock market price, and shareholder expectations.

• To guarantee that every resource would be used to its full potential, once the funds have just been received, they should put them towards the best possible use at the lowest possible cost.

• To guarantee financial stability: assets should be invested in reliable ventures to get an acceptable return on investment.

Functions of Financial Management 

• To construct a sound capital structure: A stable and reasonable capital structure is necessary to balance borrowed funds and owned funds.

• Estimation of capital requirements: A financial manager must calculate the capital requirements of a corporation. Expected expenditures and earnings, as well as future projects and policies that are of importance, will influence this. Estimates should be made so that the company’s earning capability is increased.

• Determination of capital composition: The capital structure must be decided following the estimation, which entails a budget deficit analysis for both the short and long term and will be determined by the company’s financial capital and any additional funds raised from outside sources.

• Sources of additional finances: A corporation can obtain more funds from a variety of sources, including:

– Shares and debentures are both available for purchase.
– Bank and financial institution loans are to be received.

The element to be used will be determined by each funding source’s respective pros and drawbacks and the financing duration.

Investments of funds: The finance manager must decide whether or not to invest funds in successful ventures to ensure that the investment is safe and that regular returns are attainable.

Excessive distribution: The finance manager must make the net profit choice. Dividend declaration includes determining the dividend rate and other rewards such as bonuses.

Retained earnings: A volume must be determined, which will be determined by the company’s innovation and development objectives. 

Management of cash: Making cash management decisions is the financial manager’s responsibility. Wages and salaries must be paid, as well as energy, water bills, creditors, current liabilities, and enough stock to be maintained. Raw materials must be obtained, among other things.

Financial controls: The finance manager is responsible for planning, procuring, utilizing funds, and maintaining financial management. Many strategies, such as ratio analysis, financial forecasting, cost and profit control can accomplish this.

Important of Financial Management 

• Help organizations with financial planning.
• Assist organizations with fund planning and acquisition. 
• Help organizations with properly using and allocating monies obtained or acquired.
• Assist businesses in making important financial decisions.
• Increase the profitability of companies.
• Assist in raising the overall worth of companies or organizations.
• Encourages employees to save money, which aids them in personal financial planning.

Listed Below Are Some Helpful Hints for Bettering Your Financial Management 

• Have a Clear Business Plan

A business plan will establish where you are and where you want to get to over the next few years. It should detail “how you will finance your business and its activities, what money you will need, and where it will come from”

• Monitor Your Financial Position  

You should regularly monitor the progress of your business. You should know how much money you have in the bank, how many sales you’re making, and your stock levels daily. You should also review your position against the targets set in your business plan monthly.

• Ensure Customers Pay You On Time  

Businesses can run into major problems because of late customer payments. To reduce the risk of late or non-payment, you should make your credit terms and conditions evident. You should also quickly issue invoices that are clear and accurate. Using a computerized credit management system will help you keep track of customers’ accounts.

• Know Your Day-To-Day Costs  

Even the most profitable companies can face difficulties if there isn’t enough cash to cover daily rent and wages. You should know the minimum your business needs to survive and ensure you do not go below this.

• Keep Up-To-Date Accounting Records 

If your accounts are not kept up-to-date, you could risk losing money by failing to keep up with late customer payments or not realizing when you have to pay your suppliers. Using a sound record-keeping system will help you track expenses, debts, and creditors, apply for additional funding and save time and accountancy costs.

• Meet Tax Deadlines  

Failing to meet deadlines for filing tax returns and payments can incur fines and interest. These are wasteful expenses that businesses can avoid with minimal forethought. Keeping accurate records saves your business time and money, and you can be confident that you’re only paying the tax you owe. Therefore, it’s crucial that you meet your obligations.

• Become More Efficient and Control Overheads 

Is your business operating at its most efficiently? Therefore, saving energy and money can happen by implementing changes in behavior and using existing equipment more efficiently. It’s one of the easiest ways to cut costs. Areas to look at in an average office include heating, lighting, office equipment, and air conditioning.

• Control Stock 

Efficient stock control ensures you have the right amount of stock available at the right time so that your capital is not tied up unnecessarily. You should put systems in place to keep track of stock levels – taking control of this will allow you to free up cash while also having the right amount of stock available.

• Get The Proper Funding 

It is essential that you choose the right type of finance for your business – every kind of finance is designed to meet different needs. Smaller businesses usually rely more on business overdrafts and private funding, but this might not be the best kind of funding for your company.

• Tackle Problems When They Arise 

It is always very stressful facing financial problems as a business. Still, help and advice are available to help you tackle them before it gets too much to handle, so seek professional advice as soon as possible. You can also take some initial steps to minimize the impact, such as tackling priority debts first and assessing how you can improve your cash flow management.