WHY FINANCIAL MANAGEMENT IS IMPORTANT TO YOUR BUSINESS
Financial management refers to the strategic planning, organizing, directing, and controlling of financial undertakings in an organization or an institute. It also includes applying management principles to the financial assets of an organization, while also playing an important part in fiscal management.
Financial management is one of the most important responsibilities of owners and business managers. They must consider the potential consequences of their management decisions on profits, cash flow and on the financial condition of the company. The activities of every aspect of a business have an impact on the company’s financial performance and must be evaluated and controlled by the business owner.
In order to start up or even run a successful business, you will need excellent knowledge in financial management. So what exactly is this form of management and why is it important?
Since, finance is the most important aspect of a business, business owners or freelancers must create a financial plan or strategy to stay in control of their finances.
WHY IS FINANCIAL MANAGEMENT IMPORTANT?
This form of management is important for various reasons. Take a look at some of these reasons:
- Helps organizations in financial planning;
- Assists organizations in the planning and acquisition of funds;
- Helps organizations in effectively utilizing and allocating the funds received or acquired;
- Assists organizations in making critical financial decisions;
- Helps in improving the profitability of organizations;
- Increases the overall value of the firms or organizations;
- Provides economic stability;
- Encourages employees to save money, which helps them in personal financial planning.
ADVANTAGES OF FINANCIAL MANAGEMENT
Financial management makes you a better macro manager. These are the advantages gained if you ace financial management:
- Turning your business with proactive management.
- Debts for business are easily approved.
- Quick formulation of an efficient financial plan for sharing with investors.
- Accessibility to good tools for making critical financial decisions.
- Investing money on fixed assets wisely.
- Efficiently maintain inventory and accounts receivable, develop working capital for short-terms.
- Clear knowledge of growth orientation and setting goals for sales.
- Improvement in margin of gross profit by effective pricing of your services and cutting the effective costs of direct labor, supplier prices. All of these measures affect costs of products.
- Cutting down of administrative expenses and general costs plus a more efficient business management.
- Planning for taxes.
- Planning in advance for worker settlement.
- Executing sensitivity analysis with the diverse fiscal variables involved.
Given below are a few tips to draft an appropriate financial strategy
Financial planning should be there at each and every step of running a business. Start planning as soon as you get the business idea. Do not look back. Planning now would give you freedom to flex your hands a bit, giving you some time to act, if something urgent had to come up. Keep reserves for the rainy day
Forecast Finances Easily
While it’s not literally possible to peep into the future, you could just picture what your goal is and then take some efforts to manage your finances efficiently. Study and analyse on how likely you are to spend and invest your money. Depending upon the same try and create a blueprint of the plan on which you would take things forward.
Keep your lenders aware
Quite often, it is seen that small business owners borrow money from outside. Lenders, in turn expect a quick return. Hence, they should be well informed of a business’s financial condition and the rate at which it’s progressing.
Make changes, if needed
Forecasting your finances is not an easy task to do. It could be difficult but with changing scenarios, the budget you created in the beginning might look foggy few months down the line. Make sure you stay updated with your financial plans as per the market.