Financial Management – Concept, Scope, Objectives, Functions, Importance & moreLast Updated Date: Sep 01, 2023
Whether you are a business entity or an individual, you need to understand financial management are quite significant, and you have to manage them.
Thanks to routine inflation, the price of almost everything keeps on increasing, and we don’t see that stopping anytime soon.
Due to which nearly all entities implement financial management as it ensures stability in the future.
The best part about financial management is that it gives businesses enough flexibility to continue to grow and also timely pay expenses.
Now you must be curious to learn about financial management. Don’t worry; we have got your back; the guide here is to teach you some basics on the same.
What is Financial Management?
As per Guthman and Dougal- Financial management is the activity concerned with planning, raising, controlling, and administering of funds used in the business.
As per Massie- Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations.
Firstly, before digging deep into financial management, you need to know for any business, it is essential to invest in assets that give more returns.
You can say that financial management aims to minimize the cost of finance and makes sure that a sufficient amount of funds are available.
In simple terms, you can say that your money needs to make money. Be it any business but finance is the lifeblood of all. If you have sufficient funds, your business runs smoothly.
In the absence of an ample and timely supply of funds, various things get messed, including efficient production, timely supply, and sound plans; just like production and marketing, proper financial planning is essential for any business type.
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Basics of Financial Management
From starting its operations to expansion, a business firm needs finance at all stages. Thus finance is one of the most operative functions of the business.
A large firm can raise funds from a plethora of sources, and they can utilize those funds as an optional investment opportunity.
As a company, you need sound financial policies and programs to make the most of the funds and also to get a great return on investment.
Suppose you fail to make finance correctly, then you can get into bankruptcy.
Additionally, get into a differential advantage in the market if you have adequate and economical financing.
The business is mainly successful only when it raises, utilizes, and disburses funds perfectly.
Additionally, as of now, the importance of finance has increased primarily due to a rise in the scale of operations.
Additionally, finance is one of the brightest threads which runs among all the activities of the business.
It not influences but also sets limits on various activities, including production, purchasing, personnel management, and marketing. You can measure the success of any business in financial terms.
Hence, if you want successful financing of almost all the financial functions, then you can’t skip efficient organization and administration of finance.
Important things about Financial Management
You can define financial management as planning, organizing, directing, and controlling the economic activities of any firm. Above all, you need to utilize the funds in a proper manner.
Besides dealing with the utilization and procurement of funds, financial management also takes into account capital budgeting, financial controls, etc.
The main agenda of the financial policy is to make the most of the funds.
Additionally, financial management is also linked directly with marketing, production, and other parts of the enterprise.
It plays a crucial role in the decision-making process too. You can say financial management involves a plethora of activities.
These activities can be anything from planning to organizing. Even procurement and utilization of funds are a part of financial management.
For any organization, financial management is a vital task. You need to perform these activities to achieve almost all goals and objectives.
How does Financial Management contribute?
Financial management is just perfect for controlling the financial activities of a firm.
In simple terms, you can say financial management is all about the application of financial possessions of the firm.
It also includes general principles of management. Also, the financial controls of a business form a part of financial management.
If you want to ensure the efficient functioning of your company, then you need to maintain your finances properly. Besides providing quality fuel, you also need regular services.
Organizations are most likely to face barriers and even some severe consequences on growth and development if finances are not proper.
Scope of Financial Management
Investment in fixed assets– You can also call it capital budgeting. It mainly influences investment decisions. The collective choices tend to become a part of working capital.
Financial decisions– It is a part of raising of finance. You can raise finance from a plethora of sectors, and it mainly depends upon the source type.
The decision most likely depends upon the cost of financing, returns, and period of financing
Dividend decision– the finance manager makes a decision with regards to net profit. First of all, to shareholders, the dividend rates need to be discussed.
Additionally, you also need to decide the amount of retaining profits. The rates are most likely to vary as per the expansion and diversification plans of the company.
Importance of Financial Management
Find out all important details about Financial Management –
One of the most critical aspects of financial management is financial planning. It mainly decides the economic necessities with regards to the business.
Instead of stressing at later stages, the financial planners need to take proper measures at the financial planning stages.
In later stages of financial management, financial planners need to take quick actions.
When it comes to achieving financial goals, financial management also helps in preserving the finance. You need to evaluate all the phases where fund allocation is mandatory.
If you end up overspending on one project, then you might be left with no finance for other tasks.
Under financial management, fund managers also need to give funds in a perfect manner.
The reason behind proper allocation is that it allows you to improve the operational efficiency of the firm.
Finance specialists ensure they not only allocate the funds wisely but also make the most of them. It can help in both minimizing the expense of the business and enhance the capital of the company.
If you make proper financial decisions, you can ensure the sound economic growth of your company. It will slowly enhance your wealth creation, which will allow you to grow in financial conditions.
Financial stability is essential for almost everyone. Economic growth is the only way you can ensure financial stability.
Better standard of living- When you learn about financial management, it gives you peace of mind but also ensures your standard of living improves.
Hence economic growth transforms your standard of living.
Objectives of Financial Management
- Ensure an adequate and continuous supply of financial resources to the firm.
- They are offering high returns on investment to the stakeholders. ROI and earning capacity are directly proportional.
- Make the most of the funds. After allocating the proper funds, the financial manager tends to make a strategy to use the finance at minimum risk.
- Administrating and planning a strong capital structure. To ensure a balanced ratio between debt and equity capital, you need to have a perfect economic activity.
- Financial management also aims to ensure a safe and high return on investment.
Functions of Financial Management
Here are the various Functions of Financial Management –
If the finance manager looks for perfect liquidity, then they must look for some business strategies. It can include raising funds from a plethora of sources.
Additionally, they also need to forecast cash flows so the companies can make perfect investment decisions.
Estimate the capital requirement
Capital requirement mainly depends upon expected cost, profits, rules, and some future programs. One of the most essential functions of financial management is estimations.
You need to make it in a satisfactory manner, which will prove the earnings of the company.
Almost all the large corporations have cost accounting software to keep a tab on expenses of the companies in various niches.
Everyday information gets updated on the software directly. Hence all facts are mainly displayed on the monitor.
If you want to enter into a profitable venture, then you need to choose the funds allocation. You can say funds are the liquid assets of the company.
Above all, the financial manager is responsible for the distribution of the funds.
Financial Management – Conclusion
Hence, for any organization, financial management is an important activity. It is all about planning, organizing, controlling, and managing financial resources.
Financial management mainly helps in achieving organizational goals and objectives. The aim of financial management is to manage the funds effectively.
There are a plethora of options available out there for managing the finances of the firm. You can either collect the finances by yourself or hire a professional.
You need financial management to ensure optimum utilization of funds. After you obtain the funds, you need to utilize them in the best possible ways.
Above all, you need to spend minimum and earn maximum on investment.
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