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What is ‘Financial Management’?

Financial managing is not just the name of keeping records of accounts. It more than that and is a very crucial part of organizational management. Financial management means to plan, organize and monitor the resources of the organization in order to achieve the desired objectives. It means to apply management principles to organizations finance resources.

Good finance management will allow you to have a sound organization. For this, you need to plan all the strategies. You need to set objectives and plans and tactics to achieve these objectives efficiently. Financial management can give you long-term as well as short-term advantages. Short term planning can help you in selecting operations to achieve the objectives and the long-term advantage is that achieve these small objectives will collectively make it better for your organization.

To plan a good finance management for your organization, your financial management should consist of the four essential components. Your strategy towards finance should be a clear and major function of your financial management should be generating income for the organization. A strong financial management system should be followed by a suitable internal environment.

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Different organizations have different goals and different requirements, therefore, finance management system can differ for every organization. Before making a finance system for the organization it is important to identify its needs and then apply an appropriate strategy.

The goal of every financial management system should be to ensure the regular supply of fund. It should ensure the returns to the shareholders which is only possible if market price and earning capacity is in a good state. This system should provide secure investments. Funds should be invested in the venture from where it is possible to get appropriate returns.

What should be the functions of financial management system? We will try to highlight some of its functionality.

To estimate the capital requirements:

The main goal of a financial management system is to estimate the capital requirements of the company. These requirements depend mostly upon the earnings, profits, and policies followed by the company. Th finance manager is required to apply such strategies which increase the organization’s income and hence result in increased earning capacity.

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Determining the capital composition:

Once estimated now the finance manager should focus on structuring this capital. He should do equity analysis for the long terms and also for the short terms. After which he needs to provide with the management system that will raise funds for the capital. This highly depends upon the proportion of capital that company possesses.

Sources of Funds:

A company might require funds to carry out its process. It depends upon the need of the firm that how much fund is required. Financial management should look for the best resource from where the fund can be raised. It can be a loan from a bank, issuing shares or to draw public deposits such as bonds.

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Investment of funds:

Financial management systems also provide you with the advice that where a company should invest its funds. It suggests organizations with the resources which is more profitable and regular returns are possible. It provides the organizations with the safest way to invest.

Manages finance and cash:

A company has many expenditures and it is very important for the finance manager to take a good care of the cash. As organizations need it for the wages, salaries of the employees, water and electricity bills to be paid and to purchase stock. The financial management system also manages the cash for the organization to meet the requirements all the time.

Benefits of financial management:

Some of the benefits of financial management system provides is that it

  • Use the resources efficiently
  • Good for long term sustainability
  • Achieves the objectives and fulfill the commitment of shareholders.
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