What is Financial Management and why is it important for Businesses?

Financial management is one of the most important things to look after for the company owners and managers. They must understand the impact of their management decisions on sales, cash flow, and the company's financial position. Every aspect of a business has an effect on the financial performance of the company and must be measured and managed by the business owner.

Filing and Payment of Taxes - The government is constantly on the lookout for ways to raise taxes. Financial management helps to prepare ahead of time to pay its taxes.

Any small business owner or manager must be able to handle their finances. Any decision made by an owner has a financial effect on the business, and he must make these decisions in the sense of the company's overall operations.

A Company's Life Cycle - During the startup phase, the majority of businesses incur losses and have negative cash flows. During this period, financial management is critical. Even if the company is losing money, managers must ensure that they have enough cash on hand to pay their employees and vendors. This means that the owner must make financial forecasts of these negative cash flows in order to determine how much money would be required to finance the company before it becomes profitable.

If a company expands and matures, it will need more capital to fund its expansion. It is important to plan for and prepare for these financial requirements. Financial managers make the decision as to whether to finance growth internally or borrow from external lenders. Financial management entails locating the most cost-effective source of funds, managing the company's cost of capital, and preventing the balance sheet from being too leveraged with debt, which could damage the company's credit rating.

Normal Operations Financial Management - A company's daily operations consist of providing a product or service, selling it to a buyer, collecting the money, and repeating the process. Financial management is efficiently moving cash through this cycle.

This entails maintaining the raw material and finished product inventory turnover rates, marketing to consumers and receiving receivables on schedule, and starting over by buying more raw materials. Meanwhile, the company must pay its bills, suppliers, and staff.

All of this must be accomplished with cash, and good financial management is needed to ensure that these funds flow smoothly.

Despite the fact that economies have a long history of rising, they will occasionally undergo sharp declines. Businesses must prepare ahead of time to have enough resources to survive these economic downturns; otherwise, they will be forced to close their doors due to a lack of cash.

Business Operations Reporting - Any company is required to submit reports on its operations. Shareholders want daily updates on the performance and protection of their investments. State and local governments require reports in order to raise the sales tax. Other types of reports, with key performance measures that evaluate the activities of various sections of their companies, are needed by business managers.

A comprehensive financial management system may also generate the various types of reports required by each of these different agencies.

Financial management begins by keeping track of all the money the company makes and spends. Accountants then create reports that help business owners understand their company's financial health. Benefit and loss statements, balance sheets, cash flow statements, and budgets are examples of these. Contact Persona Finance [] for consultation on how to manage your business finance.
Accounting and Finance