Whether you are striving for your business or trying to manage your income, financial management is an essential aspect in both personal and professional life. Meanwhile, understanding what financial management is will help you achieve personal financial independence, as well as a solid financial cycle for your business. The main advantages of this are the financial stability, and short, and long-term sustainable growth it provides.
To successfully manage your finances, involves making informed decisions, resource analysis, and other various aspects. However, there’s so much more to learn as this is just a surface definition of the approach. In this article, we will discuss extensively everything you need to know about financial management. Let’s get started!
What Is Financial Management?
Financial Management refers to the process of planning and managing an individual or organization’s finances to achieve its goals and objectives. Additionally, it deals with optimizing shareholder value, generating profit, minimizing risks, and achieving short and long-term financial stability. For individuals, financial management can be in the form of a retirement plan, college savings, and other personal investments.
Objectives Of Financial Management
Financial Management’s objective is to support individuals or businesses in making informed financial decisions. These decisions are focused on enhancing their financial stability and well-being, in the present and future. To achieve this, experts usually examine financial and investment data, thereby advising clients on the best possible line of action that aligns with their goals.
Furthermore, financial management can improve the performance and profitability of clients financially by designing a suitable plan on why, how, and where finances are allocated and being used. Its specific strategies and methods vary depending on whether the client is an individual or a company. Below are some major objectives of financial management. Let’s dive in!
Wealth Maximization
One of the basic objectives of financial management is wealth maximization. This involves making relevant strategies for the current investment, as well as the future returns by making optimal decisions. Good financial management can help businesses and individuals make informed capital investments and enlarge into new markets.
Resource Utilization
With financial management, businesses have the opportunity to allocate and utilize resources according to their requirements and needs. Furthermore, aside from the resources being utilized most efficiently, it also generates optimum returns for the business. Financial management also helps in the allocation of financial resources such as capital, funds, and assets to ascertain where the highest returns on projects will be.
Risk Management
Financial Management also focuses on identifying, assessing, and managing various forms of financial risks. Meanwhile, if you fail to take care of these risks, they can cause huge damage to the overall functioning of the business. Risk management objectives help businesses in maintaining financial stability and protect stakeholders’ interests.
Compliance Consideration
When a business decision and activities align with the jurisdictions and established laws for the respective industry, that’s an objective of financial management. In a business setting, professionals such as finance analysts are in charge of accounting standards, tax regulations, and industry-specific regulations.
Cash Flow Management
Cash flow management is the cash inflow and outflow within a business. Financial management aims to address this process by maintaining an adequate level of liquidation to meet short-term obligations and opportunities. Meanwhile, if you can effectively manage the cash flow, businesses can prepare for any financial challenges ahead.
Types Of Finance Management
Corporate Finance
Corporate finance is a company’s financial management to optimize its financial structure to increase shareholder value. This includes managing the capital structure, issuing additional shares, and making merger and acquisition decisions. Furthermore, if it’s the wish of a corporation to generate capital through an initial public offering, this is an example of a typical corporate finance choice (IPO). It entails selling the stock of the firm to the general public.
Investment Banking
This is a bank division that helps companies to raise cash through the underwriting and selling of securities. Well, its main purpose is to increase the bank’s returns by taking on riskier ventures. You can refer to Investment banking as a cutthroat business. If investment bankers can sell a company’s products to other investors, the company will be able to raise more money than if an investment banker is not present.
Personal Finance
Its mission is to help individuals save money, invest intelligently, and also make plans for their future financial security. In the field of personal finance, this is a popular topic with several approaches to learning it. Having a credit score is a numerical value that a credit reporting organization assigns to you.
However, your credit score will be determined by the details present on your credit report, such as your payment history, whether you’ve declared bankruptcy and the debt you owe. In addition, your credit score can influence your getting a loan, renting an apartment, or enrolling in college.
Pros Of Financial Management
- Finance management is the process of managing the finances of a company. It further comprises various tasks, such as inventory management, invoice payment, and cash flow monitoring.
- It’s a crucial part of business management. As such, the financial health of an organization is critical to its success and managing your money effectively.
- Despite its difficulty, this is an important subject. Before you start, you must demonstrate that you understand the principles of money.
- Choosing the finest type of finance management for your organization among the several available solutions is very important.
- Furthermore, you can keep track of your finances with the use of a spreadsheet. That way, it’s easy to add new information as you go and a great method to organize your data.
- Another effective approach is using a financial management tool like accounting software. This tool is more advanced than spreadsheets and it’ll assist you with several financial tasks.
- Writing a financial report is very critical, so this is a useful tool that can help you show your company’s financial soundness and provide data on your performance.
- In addition, you should enroll in a course as it will ensure that you have the necessary money management skills. Different online classes are available and you can enroll in an on-site course at your local business center.
- You should also consider enrolling in financial management training programs. You can check online for a suitable course or just register at your local business center.
Cons Of Finance Management
- One of the cons of finance management is that the salary involved is not sufficient. A finance manager can earn an average salary of around $50,000. However, if you work part-time, you will significantly earn low.
- It can be challenging to break into this field. To work in finance, you will need to possess a bachelor’s degree with numerous years of experience.
- Another disadvantage is that it might be a highly competitive field. This is due to the numerous individuals who are interested in this industry, it’s critical to stay current on trends and skills.
- In addition, finance management jobs can be extremely difficult. People who work in finance are constantly dealing with money, and frequently with significant quantities of it.
- Undoubtedly, it will require you to always be well organized since you will need to keep track of a large amount of information.
