An organization’s financial management plays a critical role in the financial success of a business. Therefore, an organization should consider financial management a key component of the general management of the organization. Financial management includes the tactical and strategic goals related to the financial resources of the business. Some of the specific roles included in financial management systems include accounting, bookkeeping, accounts payable and receivable, investment opportunities and risk.
Accounting and Bookkeeping
When establishing any financial management system, a business needs to determine if the management of the system will occur in-house or if it will use an outside entity. Any accounting system should measure, identify, record and communicate all of the financial information about the organization. The foundation of an effective accounting system is good bookkeeping. A bookkeeper gets the complete and accurate financial information to the accountant. While the accounting system looks at the overall financial picture of the organization, bookkeeping deals with the specific transactions that take place on a day-to-day basis.
Accounts Payables and Accounts Receivables
Account payables provide an organization with information about accounts with suppliers. This includes the outstanding sums of money owed to these suppliers. Additionally, account payables will show the cost of items purchased, how the organization made payments in the past and details about the transaction. Accounts payable will also show the workflow and allow the business to approve invoices, update records and maintain an integrated document management system. Account receivables, on the other hand, records what customers owe the organization for products and services purchased. An accounts receivables system can keep track of invoices, payments, produce reminder letters for outstanding payments and calculate interest for balances owed. Additionally, accounts receivables can help the organization recover past due accounts before they become bad debts.
Another aspect the financial management system relates to finding opportunities that can complement or benefit the organization. A business can only exploit these opportunities if the organization efficiently and effectively finds the opportunities and has the ability to pay for the desired acquisitions. By carefully considering the different aspects of the financial management system, a business can evaluate its overall financial health and determine its ability to invest in potential opportunities.
A business also must carefully evaluate risk. A primary goal of the financial management system is to minimize risks for the organization by implementing strategies that help the business to counteract unforeseen liabilities. The financial management system should include adequate insurance for property, equipment and key employees. Additionally, budgeting for quarterly and yearly working capital helps to minimize potential financial risk for the organization. Further, controlling debt and establishing a credit system with suppliers and financial institutions helps to minimize financial risk by allowing the business operational flexibility in the event the business experiences cash flow problems.