Financial management is an essential aspect of any business. Whether you are just starting or have a well-established company running for several years, you need to have a proper means of managing your finances, if you don’t want to end up at a loss.
Different companies adopt different methods to do financial management in business. Some hire financial consultants, while others operate a separate finance department within their organization. The method each company uses depends on the preference of the top management, the nature of the business, and the industry that it operates in.
Small and medium enterprises also need to utilize their financial resources with proper planning. You need to have cash available at all times to invest it back into the business if the need may be. All your financial statements need to be updated regularly by professional financial consultants or in-house finance specialists.
For startup firms, many entrepreneurs handle their business financial management on their own. There are tools and software available in the market that you can use to ease the process. However, you need to be equipped with at least the basic knowledge and understanding of how finances work. You need to be well informed about your incoming cash, your forecasted sales, marketing expenses, and all other operating costs.
Careers in financial management are also on the rise. As more and more companies get involved in international trade, managing finances properly also increases. We will be discussing the importance of financial management in this article, but before that, let’s define what financial management is.
What is Financial Management?
Financial management refers to planning, directing, organizing, and controlling an organization’s financial activities. These activities may include most or all of the following.
- Procurement of funds
- Utilization and flow of cash
- Financial investment decisions
- Budget allocation
- Net profit distribution
- Management of retained profits
- Updating of financial statements
Many organizations use financial management systems to assist them in these tasks. What is financial management system? It is a system or software used for managing assets and expenses and increasing your profit margin. Some standard functions performed by financial management systems include the following.
- Maintaining audit trails
- Reducing accounting errors
- Ensuring that the company complies with the relevant accounting standards
Why is Financial Management Important?
Financial management serves many purposes in the process of running a business. Let’s discuss a few of these purposes in detail.
1. It Provides Guidance For Investment Opportunities
When your business financial management is in place, you can judge the position of your business in a better way. Under these circumstances, when a new opportunity or a chance to expand your services comes along, you can make more informed decisions for the growth of your business.
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Sound financial management keeps you informed about the risks in taking on a new opportunity. It keeps you updated about the cash inflow and the chances of a dip in your revenue streams based on your forecasted sales. When you have this information, you can decide whether or not it is safe for you to indulge in a considerable investment, which is expected to bring a return for your business over a specified period.
Poor financial management leads to poor decision-making regarding any investment opportunities that come along. Hence, to avoid losses in your business and keep your cash flowing smoothly, you need to do solid financial management in business.
2. It Helps in Acquiring Funds and Utilizing Opportunities For Growth
Just like financial management helps you avoid losses, it also helps you utilize opportunities destined to make your business grow and expand. When you know exactly how many funds you have available for investing in a chance, you can decide on the spot whether or not you want to take that path. For this to happen, you need to have thorough calculations done in time and preallocate appropriate budgets to all the departments of your operations.
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When you are making a pitch to an investor, if you are good at your financial management in business, you will be well-prepared to tell them about your actual financial position so that they don’t feel cheated once they make their investment. This works out well for both parties. You can acquire the funds that you need from an investor while the investor feels secure in putting in money into your business, expecting a realistic return in due time.
3. It Increases Organizational Efficiency
Proper financial management helps you operate all your departments more efficiently. When every project is allocated the required amount of budget that it’s agreed for, you can see clearly how your funds are distributed. This way, the projects that are giving you the least profits can be discontinued at a later phase. Clients that are bringing in the highest revenue can be given higher priority in the future.
Your organizational efficiency will increase by taking such actions, and you can handle your projects more profitably. If you team up your staff and train them to keep a sharp eye on the projects generating more income, you can enhance each employee’s work efficiency.
4. It Reduces Delays in Production
When your cash flow is well organized, you are better positioned to handle and manage your orders in time. Some companies use separate systems for order management to avoid delays in delivery and out-of-stock problems.
For example, if you manage your orders through a website built on Strikingly, you can see the status of each order, the customer’s name, the date order was placed, and the date when it is due, all in one place. If there are any expected delays, you can inform the customer beforehand to avoid misunderstandings at the last minute.
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Increased efficiency in delivering your orders and managing other business operations ultimately cuts down your financial costs. This is a massive benefit if you are looking to grow your business by penetrating new markets and thus contributes to the importance of financial management.
5. It Provides Information via Financial Reporting
The standard accounting practices and procedures that use financial statements for disclosing a company’s financial position and performance is referred to as financial reporting. It is usually done on a quarterly or annual basis.
Financial management eases out your financial reporting process because everything is already prepared and calculated regularly. It is easier to disclose data that is well organized than that which is scattered and not fully computed on time.
6. It Increases the Wealth of Shareholders
A major part of financial planning includes deciding how much of your revenue needs to be reinvested, how much is retained as profits, and how much is distributed among shareholders. Business financial management enables you to reduce any wastage in the process. When all resources are allocated efficiently, there is more revenue left for distributing among the shareholders. That’s how good financial management increases the wealth of your shareholders.
7. It Helps Prevent Leakage, Theft, and Financial Fraud
When all your financial resources are calculated and computed on time, nobody can steal money from your accounts without letting you notice the shortage. A key aspect of sound financial management is to help a business avoid money leakage, theft, and financial fraud.
8. It Keeps Your Employees Alert
When the employees working in your firm are aware of your financial management practices, they will be more cautious in handling the company’s money and be more honest in any business transactions they get involved in. This gives a similar benefit to that mentioned in the previous point: business financial management helps prevent internal and external financial frauds.
When your employees know how you manage your funds, they also feel secure working for your organization, as they know they will always be paid their salary on time. Hence, good financial management also contributes to increased motivation in your staff.
Suppose you are looking to start using a financial management system for managing the cash inflow and outflow of your business. In that case, we suggest you use a website building platform instead of developing a full-fledged professional website that can help you in your financial management. Having all your systems in one place makes it easier and more cost-effective to manage everything.
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To build a basic website on Strikingly, all you need to do is create a free account by filling out the form on our landing page and selecting one of the ready-to-use templates. Once you pick a template, you can start keying in your website content in the Strikingly editor.
We offer multiple payment gateways for you to choose from. Your Strikingly website can become a one-stop platform for you to collect payments from your clients, even if your services are delivered in-person or your products are sold at retail outlets.
Your web development and maintenance should be the least of your troubles when you are running a business. If you work with us and use our platform to build your site, we will handle the technical issues for you to focus on the other more critical aspects of your business, such as your marketing and financial management.