In the world of finance, what is financial management? Financial management can be defined as the discipline or field in an organization that is focused on costs, income, cash flow, credit and the ways the “organization can have the resources to carry out its activities with a higher degree of success.” Financial management is not only important in small organizations; it is also essential for large corporations and international organizations. It is very important for all companies. This is because no matter what type of business you are in, you will always need financial management and the ability to meet financial obligations.
So, what are the benefits of effective financial management?
For one thing, financial managers are able to maximize profits and minimize losses. By doing this, financial managers are able to attract new customers. Therefore, a company with a solid financial management plan and skilled financial managers will most likely enjoy good profits over a long-term period. However, these profits can only be realized if the company is able to minimize losses that it may incur in the process of its operations.
Another advantage is that a strong finance system is essential to any organization that wants to grow. Without a solid financial management plan, a company would have problems raising capital or it would have problems liquidating its excess assets to raise capital. Capital represents the lifeline of any business and therefore, investors would only trust a company that has well-managed finances.
A company should therefore implement the three principles of effective management principles in order to obtain and maintain a positive cash flow. First, the financial manager should create a sound fund management policy that ensures that all the necessary funds are available to the company. Second, the financial manager should be attentive to the cash flow and should have a good relationship with the suppliers of capital for the business. This means that the manager will be able to anticipate any problems that may occur with the supply of cash to the company.
In order to maximize the profits of the company, the management should be able to forecast how much money the company needs. In order to do this, the manager should determine the annual revenues that the business will earn during the year. This will allow the manager to know what inventory will be in demand and to buy the products that will yield the highest returns. At the same time, the financial manager should identify how much money the company needs to disburse to ensure its long-term viability. This means that sufficient funds are required to pay for wages and salaries, as well as other operational expenses such as building maintenance.
Capital expenditures are also important to the success of any business. Therefore, a good financial management system should include appropriate procedures in order to control capital expenditures. The first step is the identification of the target amount of capital that the company needs to operate each year. From this amount, the financial manager should estimate the amount of short-term and long-term assets that will be required to run the business uninterruptedly. Another step in financial management is to determine the level of interest that will be charged on the investment that is made to buy these assets. To make sure that the capital that is being spent is not wasted, the financial manager should do the necessary calculations concerning interest rates and should estimate the annual return on the capital.
Proper budgeting is essential for a successful business. This is because a financial manager must be able to predict how much money is needed in order to run the day-to-day operations of the company. This is why a budget is often called a Cash Flow Statement. Proper budgeting will also allow a financial manager to show how the company is balancing its accounts receivable and accounts payable.
Finally, controlling cash flow is also crucial in the management of financial resources. A manager must be able to forecast how much money is coming in and how much money is going out each day. This includes the balance between cash balances and bank overdrafts. It takes a professional accountant to be able to properly assess and manage the cash flow of a company. Since there are a lot of aspects involved in the management of financial resources, it is best to leave the work to an expert such as a Certified Public Accountant. This way, you can be sure that you are getting the best service from an accountant who has ample experience in the financial management field.