Financial Management
Financial Management can be defined as:The management of the finances of a business / organisation in order to achieve financial objectivesTaking a commercial business as the most common organisational structure, the key objectives of financial management would be to:
• Create wealth for the business• Generate cash, and• Provide an adequate return on investment bearing in mind the risks that the business is taking and the resources investedThere are three key elements to the process of financial management:
(1) Financial Planning Management need to ensure that enough funding is available at the right time to meet the needs of the business. In the short term, funding may be needed to invest in equipment and stocks, pay employees and fund sales made on credit.In the medium and long term, funding may be required for significant additions to the productive capacity of the business or to make acquisitions.
(2) Financial Control Financial control is a critically important activity to help the business ensure that the business is meeting its objectives. Financial control addresses questions such as:• Are assets being used efficiently?• Are the businesses assets secure?• Do management act in the best interest of shareholders and in accordance with business rules?
(3) Financial Decision-making The key aspects of financial decision-making relate to investment, financing and dividends:• Investments must be financed in some way – however there are always financing alternatives that can be considered. For example it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers• A key financing decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.
What Are the Duties of Financial Managers?
One of the most important duties for financial managers is to oversee the financial development of a company. Financial managers provide oversight in the creation of financial reports, develop cash management strategies and make key decisions regarding the investment activities that their company engages in. Financial managers in banks or investment firms who oversee a particular branch or department often coordinate the financial activities of workers under their direction.
Cash Management Some financial managers, known as cash managers, manage the flow of money in and out of a company in terms of disbursing payments and keeping track of money coming into the company.
Minimizing Risk Another type of financial manager, known as a risk manager or insurance manager, tries to minimize the amount of financial risk a company takes. He typically oversees various types of programs designed to prevent undue loss. In some cases, this may involve the purchase of various types of insurance policies that protect the company in the event of unforeseen loss.
Other Tasks Financial managers also perform a number of different miscellaneous activities. Some of these include networking within the community in order to increase business and establish relationships with other businesses. This is especially important for banks that want to attract other businesses that may need to borrow money in order to sustain the businesses. -The primary goal of financial management is to maximize shareholders wealth.