With the rapidly increasing business world activities, it isn’t easy to focus on each aspect separately. The process, right from planning and organising all management, marketing, sales, production, finance, and other activities to executing them, becomes lengthy and one individual can not handle everything single-handedly. So all the sectors have individual experts who help smoother functioning of the organisation. Not only this, but they also keep each business activity perfect with their expertise. This article details everything about business financial management that you must know if you want to carry out the functions without any burden.
What is Financial Management?
The planning, organising, directing, and controlling the procurement and utilisation of funds in any organisation refers to financial management. In other words, strategic planning of command and control of business finance comes under business financial management. When you apply rules of general management in the financial aspect, you understand what financial management is. It involves the evaluation, management, and disclosure of economic activities essential for the firm’s successful operation.
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Importance of Business Financial Management-
When it comes to money, you need to pay undivided attention to all matters. And most significantly, the finance aspect needs proper management. The following points help you understand the importance of business financial management.
- It reduces the burden on owners to carry out financial planning.
- It assists to know different sources for acquiring funds.
- It helps in making investment decisions.
- It ensures the organisation’s working efficiency.
- It cuts down unnecessary costs.
- It provides economic stability.
- It improves profitability.
Finance is a critical factor that influences any business. If the finance and its sources are not integrated, conducting business in the ordinary course would be difficult. That is why people hire professionals who manage finance and reduce the owner’s burden.
Any firm or company does not only focus on the procurement of funds but also on its investment. It is critical to know the places of investment that will give high returns, whether the investment is safe or not, etc. Everyone doesn’t need to know all the business requirements. And investment decisions are the most critical. So generally people in business recruit experts who can assist them in such a situation.
Business financial management is a broad term. From analysing capital sources to the distribution of profits, every financial aspect is dealt with by financial managers. Finance managers provide accurate data analysis and formulate strategies accordingly. A massive credit for profit maximisation and cost minimisation goes to the managers of finance. They possess the following qualities.
- Problem-solving capabilities
- Communication skills
- Analytical skills
- Interpersonal skills
- Proficiency in mathematics
- Technologically adaptive
They are a significant part of any organisation. Business financial management requires people who can undertake the following responsibilities.
- A finance manager has to make estimations concerning the capital requirements of the company. It depends on unexpected costs and various other factors. The manager must be able to analyse it correctly and give an adequate estimation.
- Capital composition of a company says a lot. The money manager must understand it and state the proportion of long term and short term borrowings, debt to equity, etc. The company must know how much capital it can borrow depending on its composition.
- There are various sources from where a company can raise funds. But each has its pros and cons. The finance manager must critically analyse all sources- whether issue debentures, take loans from banks, or issue public deposits- and then decide.
- Investment decisions are the most crucial part of business finance management. The finance manager must allocate funds when the returns are recurring, and the money of the company is safe.
- A finance manager is responsible for disposing surpluses. The net profit can be allocated in two ways. It can be paid to the employees as bonus or shareholders’ dividend in case of a company, or they can be kept as retained earnings. The money manager must know what is better and take decisions appropriately.
- Cash management is also a part of finance. Cash is required for many big and small purposes. Whether it is to pay wages, salaries, and bills or pay off current liabilities, it is essential to maintain liquidity. It is the responsibility of the money manager.
- A manager not only plans and organises but also controls all activities. Any deviations from the target plans need to be addressed by the manager. A manager must be pro in ratio analysis, financial forecasting, cost control, profit maximisation, etc.
You can never separate finance and business. It is a loop; both are interconnected. And so, expert knowledge is required to avoid any blunders. It is a substantial responsibility, and simultaneously, business financial management has a considerable scope. It is necessary for every industry, in every organisation, and by every person. So, as a finance specialist, you can grow and develop a lot.