Financial management is really important to manage all of an organization’s assets and liabilities, including monitoring operational financing items such as expense, revenues or incomes, accounts receivable and accounts payable, cash flow, and profitability. You know an organization’s ultimate goal is to make money and keep it. All organization aims to increase their profits, reduce their expenses and enhance their market share by planning, organizing and managing the financial activities.
Financial management refers to the specific strategy of usage and management of a company’s financial resources and planning, organizing, directing and controlling the financial activities in such a manner as to attain the objectives of the organization.
In short words, financial management involves governing of an organization’s revenue, expenses, and assets with the motives of maximizing profits and ensuring sustainability.
It is not just keeping accounting records for an organization. It is an important part of organizational management to efficiently and effectively manage the funds and cannot be seen as an individual task to be left to finance staff or the honorary treasurer.
You need to learn about financial management to plan and organize long-term and short-term operations for an organization. And I know you will agree with us that it has become part of an organization’s ongoing planning process.
Importance of financial management
Financial management is an essential part of any organization because it helps to make decisions towards the maximizing of the value of the firm. It has now accepted that financial management acquires an essential place in the business because the success of a business or an organization largely relies on the financial strategies promoted by the financial management. Let’s see the importance of financial management:
Setting Clear Goal
The process of setting goals helps the organization to decide where you are and what you need to do to reach your desired objectives. Setting goal helps to understand whether the decisions taken are in the best interest of the shareholders or not. Financial management also directs the efforts of all working areas of business towards acquiring the objectives and simplify among the functional areas of the firm.
A Plan for Generating Income
The organization collects long-term funds mainly for acquiring permanent assets. The sources of long-term finance may be equity shares, preference shares, bond, term loan etc. The organization needs to decide the appropriate mix of these sources and amount of long-term funds; otherwise, the organization will have to face the higher cost and expose to higher risk. And only Financial management helps the organization to select the right sources of funds.
Increase the Value of the Firm
The performance of an organization can be measured by its financial results and also help to make it easier for management to evaluate the progress of the company. Financial management is a great field of maximizing the wealth of the financiers and the business concern. The Ultimate aim of any business concern will achieve and increase the profit which jointly determines the value of the firm.
Thus, it is clear that the significance of financial management has increased in the modern age because of the financial commitment of the management to different parties concerned.