Financial management is an essential requirement of profit or non-profit organizations. It plays a pivotal role in managing your financial resources effectively. Like other business resources, finance also has certain limitations.
It is a kind of strategic approach that allows businesses to run in a better way. The features of financial management typically include planning, organizing, directing, and controlling. They have efficiency in handling the business’s overall financial tasks such as procurement and utilization of funds.
However, to know in detail, give a read to the following article.
Financial Planning And Forecasting
Financial planning is a way to inspect the company’s actual financial position. The process will take place in different areas of finance like taxes, investment, and saving. They help determine the objectives of the company and allow businesses to manage their expenses accordingly.
A financial plan is used to revise annually by considering the company’s financial projections and budget. It assists financial managers to make potential decisions based on the established business goals. Organizations can hire experienced financial managers tend to obtain healthy cash flows and strong balance sheets.
Cash Management
Cash management is another important activity that ensures the financial stability of an organization. It allows financial managers to estimate the revenue of a company and make certain whether it is sufficient to reach the goals.
When determining the business capital, the manager should consider different features including company policies, size of a business, and predicted profit. Additionally, they need to be aware of financial risk management to avoid business losses in the future.
Determining the Capital Structure
Deciding your capital structure is a major financial management function. Both the short-term and long-term debt and equity come under this function. However, the capital structure will be decided based on the necessary capital of the company.
Funding Sources
Companies necessitate identifying the source of the capital. To proceed with the estimated goals, they need to approach bank loans, investors, or IPO (initial public offering). Financial managers need to consider the advantages and limitations of each source of resources before choosing.
Forecasting Cash Flows
Identifying future expenses is a part of financial management. An effective cash flow prediction is fundamental, and it takes place in different aspects. Through that the companies can determine whether they have enough cash to run or grow their enterprises.
Surprisingly, it lets you know that when your company is about to meet a loss then it is making. There is no compulsion in choosing the funding resources, it may be external or internal.
Income Distribution
Determining the net revenue is also an important decision of a financial manager based on the two different areas such as the rate of dividends and retained profit rate.
Investing the Business Capital
A proper distribution of business capital is one of the hectic functions in financial management. While making every small investment, the finance manager is responsible for ensuring its associated risk factors and return on investment.
A good planning of investment is designated to maximize the profit rate and minimize the loss. According to the financial management functions, investing capital in viable businesses saves your money and makes ROI consistent.
Financial Command
The finance manager needs to prepare tactics to optimize the financial control of funds. Aside from that strategies must be developed to raise, allocate, and reasonably spend capital. The financial management function contains a different range of strategies to accomplish financial forecasting, ratio analysis, cost control, pricing, and more.
Pricing And Price Control
Businesses of all sizes have potentially made the cost-accounting system to keep track of expenditures. The systems are framed to strategically analyze every task and activity that takes part inside the organization. Making changes according to the business fluctuations allows the firm to run successfully.
Estimation of Capital Requirements
The primary function of financial managers in any company is to determine the actual capital requirements of a business to fulfill its objectives and mission. However, the capital can be estimated by several factors including expected profits, size of the business, policies, and company programs.
Choice of Sources of Funds
Next to the decision of capital requirement, determine where the source of funds comes from. Based on the needs, the company may tend to approach investors or bank loans. The choice of fund is a decision of the individual company as it is essential to check the benefits and limitations associated with it.
Investment of Funds
Fund allocation is a challenging task for any organization. Whether the investment is small or big, it is crucial to invest in profitable ventures. The finance manager is the one who needs to uncover the risk factors and return on investment before investing funds. The investment method should be chosen that helps optimize a higher profit rate and lower loss of funds.
Disposal of Surplus
The finance manager of a company needs to make net profit decisions by considering these two factors: Dividend declaration and retained profit.
Dividend declaration – Estimating the rate of individuals and other advantages like bonus
Retained Profits – The profit volume has been decided based on the innovational and expansion plans of the company.
Management of Cash
Cash management allows finance managers to have a keen sense of understanding about the profit and loss associated with the business. You know the cash can be used for different purposes like electricity bills, water bills, purchase of raw materials, wages and salaries, etc.
Financial Controls
The finance manager of a company not only decides the investment funds but also controls expenses. It can be performed through different techniques such as profit control, ratio analysis, financial planning and forecasting, etc.
Mergers and Acquisitions
They both are the decisions made by the finance manager when buying a new or existing company. Merger is performed to combine two different businesses into a new one.
The manager takes responsibility for carefully examining the financial conditions of each company’s goals and mission.
Work on Capital Budgeting
Capital budgeting is a process relevant to making decisions regarding the investment in bonds or stocks, the purchase of new assets, and the preparation of new facilities. However, identifying the challenges and opportunities of organizations is essential to let things go better.
Financial Reporting
Financial reporting is about sharing financial information with a wide range of stakeholders. Reporting can be enabled in two different types: Internal and external.
Internal Reporting – Internal financial reporting is prepared to make financial decisions efficiently.
External Reporting – Agencies like traders or investors prepare external financial reporting to recognize the company’s financial status.
Risk Management
The risk factors integrated with the financial management of businesses are highly vulnerable. To tackle it effectively, the finance manager has developed a mitigation strategy based on the organization’s mission and goals. Removing all risk is impossible still the strategy assists you in dealing with it.
Check out our article on the Scope of Financial Management.
Bottomline
Financial management is significant in businesses of any type. It could be a reason that this topic goes viral in the business world. The primary goal of a business is to make more profit and consistent business processes.
The process associated with financial management is crucial and hectic. However, the finance manager is the one who needs to take responsibility to ensure the business’s financial position periodically.