Financial management provides a framework for pursuing synergy between the functional responsibilities and financial resources of the business organization. In the modern business world, it involves embracing flexible monetary policies, integrative financial systems and strategic decision models capable of maximizing wealth generation.
Financial management in the modern business world centers around maximizing efficiency in the acquisition and utilization of financial resources. The use of integrative financial systems and controls enable you to monitor and regulate the use of funds in your business. The success of your business depends on your ability to minimize wastage and pilferage of resources in your financial operations and strategic activities.
A small business must have sufficient funds to support routine activities and future plans. One objective of the financial management is to ensure you have enough cash at your disposal to support your business operations and strategies. Financial management facilitates the preparation of cash flow forecasts and budgets. This enables you to allocate your financial resources effectively and raise additional capital in good time whenever you experience funding shortfalls.
Financial management looks to maximize returns. A profitable business keeps the existing shareholders satisfied and attracts new investors to your business. Shareholders always have high expectations on the performance of the business and seek to maintain profitable business ventures in their investment portfolios. Profitability serves as a competitive advantage as it gives you the financial muscle you need to penetrate new markets and stay ahead of competitors.
Financial management seeks to ensure your funds are channeled towards safe and rewarding investments. Avoid committing your scarce financial resources to risky investments that may derail market growth and expansion. The financial management function comes in handy when seeking to minimize risks and optimize your financial capital. For example, financial managers use capital budgeting techniques to evaluate the feasibility and risks of undertaking long-term investments. Such analytical approaches enable you to avoid risky, volatile and worthless investments.
Different sources of capital such as loans and share capital portent varied implications to your overall costs of capital. Financial management ensures that you achieve a balance between the different sources of finance. Indeed, you should always be sensitive to the realities of the modern business world when designing your capital structure.