Assume that you have got funding from Unlimited Bank of Universe. This bank can invest unlimited amount of money in your business without expecting any return against investment. Infact, the bank does not want back even its principal amount.
You are investing its money, doing various experiments in business, and things are going quite easy and smooth.
If you are getting a continuous funding from this bank, then please don’t read the blog below because it talks about financial management which is of no use for you.
Pay attention if you have limited funds, your funding partner expects returns and if every penny is important to you.
In This Blog You Will Read:
- What is Financial Management?
- Elements of Financial Management
- Objectives of Financial Management
- Importance of Financial Management
- Who is Responsible for Financial Management?
- Final Thoughts
To start, let us get into the core of the topic, which is understanding financial management.
What is Financial Management:
Like any other management, financial management is optimizing utilization of money for your business. It involves planning, budgeting, foreseeing expenditure etc.
The aim of financial management is to effectively manage financial resources and achieve profitability, stability, and long-term sustainability.
Elements of Financial Management:
Financial management comprises following elements:
Financial planning –
Financial planning is an important element of financial management. It reflects the cash needs of an organization according to its business plan.
This planning tells an organization how much money it requires to achieve its goals. Financial planning is a continuous process.
While making a financial plan, both fixed and variable expenses must be considered.
With proper financial planning, organizations can make sure that ample liquid is available for day-to-day functions. Besides, planning helps organizations to formulize policies and SOPs regarding money handling and expense.
Financial reporting is a crucial part of financial planning. Reporting is showcasing the financial status to various stakeholders like board members, investors, banks, governments and in some cases public.
Financial reporting comes out of financial accounting, and it shows the concerned people how the organization benefits from the money it holds.
Financial controls –
Financial control ensures maximum profits to organization and stakeholders. It implements policies and procedures designed in planning stage.
It also documents and identifies any money leakage. By identifying gaps, it can fill it to churn maximum output of monetary resources.
Besides earning profits, financial control also prevents theft. With strict control on overspending, there is very little possibility of fraud and theft.
Financial decisions –
It is making an informed choice after considering all the options. Once all the options and alternatives of plans are observed, the best plan is chosen to executed.
This plan must match up with planning, reporting, controlling and other factors.
Allocation of funds –
Various departments of an organization will get different share of money based on their requirement. Allotment of money to a department is proportional to value addition a department can give to growth of an organization.
Therefore, allocation of funds is also an important aspect of financial management.
Cash flow –
It ensures that a company has enough amount of liquid funds to operate on regular basis. Poor cash flow results from various factors like ordering too much material when there is slowdown in demand.
Stocking without having account of previous stocks, offering long credit periods etc also case cash crunch.
Stocking can be streamlined if organizations deploy an ERP software like BatchMaster ERP for their inventory management. Such ERPs has an efficient planning module to plan purchases efficiently and thus avoid wastage.
To know how inventory module of BatchMaster ERP works read- Ultimate Guide to Inventory Management for 2023
Objective of Financial Management:
Here are some important objectives of financial management:
- Balanced structure
- Business survival
- Risk mitigation
- Profit maximization
- Thoughtful fund allocation
- Enhancing departmental efficiency
Importance of Financial Management:
Financial management plays a key role in sustenance and growth of an organization. With effective financial management, an organization can achieve self-reliance, and can transcend on growth trajectory. Besides, effective financial management has many advantages like:
It makes organizations compliant –
Every organization need to comply with governmental financial laws and regulations. There are specific guidelines by the government of each country to maintain books, show transactions and maintain the records.
With effective financial management and planning, organizations meet the mandates in time to avoid penalties.
Abiding by the compliance, foster ease of business and eventually a smooth business makes a happy customer.
BatchMaster offers finance suite which is a complete package in itself and covers all legal man dates. The finance module of BatchMaster ERP helps organization to be compliant to the finance rules and laws.
It gives better funding source –
An organization can have many various sources of funding, but only the viable source is recommended.
A good financial management always shows the best source of funding, which is easier to achieve, at minimum interest rate and without much hassle.
It keeps a check over expenditure –
Organizations need funds for its day -to -day functions. Besides, it must store reserves to meet emergency.
Effective financial management helps organization to foresee, plan expenses, and identify the source of funding against planned expenses.
These disciplined expenses avert over expenditure and companies never run out of money.
With the help of finance module of BatchMaster ERP, organizations can oversee where money is flowing, and can check over expenditure.
It helps in risk management –
Risk is an inevitable part of business. Sometimes foreseen or sometimes unseen, risk can be a speed breaker in the way of growth.
An effective financial management helps organization to foresee the risk, prepare a combat plan and help them to navigate it.
Helps in identifying scope of improvement –
Financial management drills down to each department and scrutinizes various financial leakages.
These leakages can occur due to poor practices, procedures, inefficient work force, lack of resources etc. Financial management figures out these dark areas and rings the bell to improve.
Who is Responsible for Financial Management?
Although finance managers have a lot to do in financial management, CFO of the organization has a larger say and pivotal role to play.
Since an ERP gives a comprehensive outlook to CFO/Finance Managers, the role of a financial management tool like BatchMaster ERP is very important.
A finance ERP module has numerous benefits to offer. It simplifies financial record keeping, and year end closing besides providing in-depth analysis of the financial movements for better reporting.
To know the benefits in length click here.
Domain of financial management is much wider than accounting. To make an apt plan for financial management, a finance manager must have a drill down view of every department.
BatchMaster ERP enables finance managers of process manufacturing organizations to get this view.
With easy and seamless integration with various accounting software like Tally, Sage, Microsoft Dynamics 365 Business Central, QuickBooks and having its own accounting software named BM Finance, BatchMaster ERP is the perfect tool for your financial management.