Financial management is the application of general management knowledge into funds by organizing, planning, controlling and directing the utilization of funds in an enterprise.
Financial goals are milestones that funds are to cater for at a particular time. The question is, how can you carry out proper financial management without a financial goal?
In the establishment of any enterprise or business, the main purpose or value is to either solve a problem or just for making money. It does not even sound logical to begin anything without a goal in mind. The fact is funds are the fuel to any business today and given the fragility of businesses, most enterprises tend to invest most of the funds in keeping the business running, but this type of unnecessary spending can be avoided with proper financial management in order to attain the benefits of a business.
The practice of controlling funds is very important as it aids in accountability and discipline. Regardless of the goal or purpose for any business or enterprise, financial management is an indispensable skill. Without a financial goal at the moment, it is possible to just focus on managing the funds without having any new investment plan or goal that is to be attained in the future.
Financial management aids the enterprise determine what to spend, where to spend and when to spend. Due to all kinds of cash flow and continuous transactions in any enterprise, managing becomes more essential than the need of a motivating financial goal. As it turns out, managing leads to knowing and deciding where to put funds in order to increase the value of an enterprise.
There are ways to manage your finances just for the purpose of managing it.
- THE GENERATION OF CAPITAL
In the establishment of a business, the generation of capital is the very first thing on the list. This requires capital investment. As the business begins to gain value, getting materials and equipment, hiring professionals and marketing, this all requires financial management in order to assign designated funds when available and cut down unnecessary spending.
- THE MANAGEMENT OF CASH FLOW
Bad management of surplus funds is as fatal as spending carelessly in order to keep the business running. The ability for an organization to smoothly operate on a daily basis is a combination of various departments but the management of cash flow is imperative. In the event of acquiring surplus funds and not allocating it properly signifies wastage of resources. In an enterprise with surplus funds it is mandatory to invest in promising and important engagements to yield better returns and increase the value of the business.
- ALLOCATION OF FUNDS
The need to allocate funds and use it to follow the trend of expenses that happen on a daily basis is an essential practice in financial management. It is not any new fact that spending money without any proper planning is not wise. Hence, It is important to track any expense, observe the consistency and then decide on a plan for how to spend and how much. This also helps in advocating for the cut downs of extra costs in order for the business to attain sufficient funds to deal with any monetary emergency.
- FAILURE-PROOF TO AN ECONOMIC DOWNTURN
The volatility of any business is more or less inevitable. When looking at the growth graph of any business, it is close to impossible for a bend to not be present. The growth of every business is as good as a rollercoaster ride and this could be due to a number of reasons. Recession, depression or even failure. With the presence of finance and impeccable financial management, it is easier for the enterprise to ride through the business cycle failure-proof. Regardless of the situation, there is always a plan to control the problem and bear any consequences without the fear of bankruptcy. Financial management is needed to protect an enterprise against the effects of known adverse economic conditions.
Even without an inspirational or motivational financial goal for a business, the simplest things to keep the business running and increasing the value for the business can help form the decision on what financial goal to plan towards during the growth of the business. The importance of financial management is the guiding tool towards that financial goal. A business owner is required to have a transparent view on all the financial activities and also indulge in planning effective utilization of available resources.