What is financial management | function of financial management.

What is Financial Management?

In business, cash is king. How a corporation or business arranges, obtains, spends, and protects its money can ultimately determine its path to success or its downfall. This is where financial management steps in—it’s the thoughtful planning, saving, investing, controlling, and organizing of monetary resources, with the end purpose of reaching financial goals and maintaining an organization’s long-term stability and growth.

Financial management is the process of making good money decisions. It’s not only about counting money but about making money work for the business. This includes everything from liquidity operations on a day-to-day level to longer-term strategic investments.

Function of Financial Management.

An entrepreneur or a businessman needs to deal with various essential functions in order to maintain the health and development of a company or organisation. These responsibilities can be broadly divided into strategic planning and day-to-day operational duties.

Here are some of the functions of financial management:

Planning and forecasting:

Forecasting Capital Needs: Identifying how much money the company needs to have on hand or accessible in the form of short-term operating cash and for longer-term investments (fixed assets, expansion). This would mean that they can predict the future requirement of materials based on the predicted growth, sales, and operating costs.

Predicting Financial Outcome: The ability to predict the future financials of the company, such as sales, expenses, and profits. That means you must prepare pro forma financial statements (income statement, balance sheet, and cash flow) to predict future financial position.

Determining financial targets and objectives: Setting explicit, measurable financial performance goals (profitability, liquidity, and desired growth rates).

Fund Raising (Financing Decisions):

Deciding the mix of Debt and Equity: Deciding an optimal combination of borrowed funds (Debt) and owners’ funds (Equity) to operate the business. This requires tradeoffs between the cost of capital, financial risk, and control.

Sources of Financing: Obtaining funds from shareholders (equity), bank loans or bonds, retained earnings, venture capital, and other financial products. The strategy should be to acquire money at the lowest cost and with the best conditions

Raising Capital: Implementing the process of increasing the targeted financing from the selected financial source, which might involve drafting and presenting financial packages, negotiating with lenders or investors, and executing legal documentation.

Utilisation of funds (Investment Decisions / Capital Budgeting) :

Asset Allocation: Deciding how much money should be invested in different types of assets (such as equipment, land, tech, R&D, advertising).

Investment analysis assessing opportunities: review potential projects and investments to make recommendations considering their commercial returns and the potential risks. This includes methods such as Net Present Value (NPV), Internal Rate of Return (IRR), and payback.

Working Capital Management: You manage current assets (cash, inventory, receivables), and current liabilities (payables, short term borrowings) to ensure good liquidity and yield to support daily operations and profit.

Disposal of Profit (Dividend Decisions):

Profit Distribution Decision: How much of the total profits made by the company do you want to keep for retaining in the business, so it can be used for future expansion, and how much do you want to distribute among the shareholders? This strikes a balance between the demand of shareholders and the long-term financial requirements of the company.

Financial Control and Analysis:

Budgeting and Variance Analysis: Developing explicit budgets for to different sections and acts, which allows comparison through regular updates and thus brings out variances which can be controlled on time.

Financial Records: Create accurate and timely financial reports for management, distribution to shareholders, owners, and regulators (income statement, balance sheet, and cash flow statement).

VICI Financial Analysis Using financial ratios to measure the company’s financial health, operating efficiency, and liquidity. This factor is also useful for trend measurement and to help you take an informed decision.

Cost Control and Revenue Generation: Oversee expenditures to ensure they are consistent with the budget and find ways to minimize costs without sacrificing quality and strategising the growth of the business in terms of revenues and profits.

Risk Management:

Types of Financial Risks (1) Financial Risk: Identify possible financial risks, including market, credit, liquidity and operational risk, and assess such risks and take appropriate measures accordingly.

Risk Reduction and Management: Planning and acting to reduce the likelihood of identified risk; strategy plans include hedging, insurance, diversification, and internal management control systems

Ensuring Compliance:

egulatory compliance: Complying with laws, accounting standards (such as GAAP and IFRS), tax requirements, and industry specifics for all financial activities and reporting.

Internal control: Establish strong internal controls to protect assets, detect fraud, and generate reliable and accurate financial statements.

Conculation:

Fundamentally, financial management functions are all about planning, procuring, using, and accounting for financial resources to meet the organization’s broad objectives, which are generally to add shareholder value in the short run and ensure survival in the long run.

What is Financial Management? Function of Financial Management.