Regardless of whether an organization is for profit or not, finance is an essential and necessary component. In the end, businesses need money to continue their day-to-day operations and remain viable. The ability of an organization to effectively plan, organize, direct, and regulate its financial activities and procedures is referred to as financial management. This can include acquiring, allocating, and using funds, but it is not limited to these only. Important Functions of Financial Management Techniques Financial management procedures exist to assist a company in achieving its objectives.
The organization's operation's nature must be well-understood by the financial managers. A finance manager of a bakery, for example, must be familiar with bakery finances. Additionally, they must have access to relevant tax and other policies that affect their industry. Let’s see the significant roles of financial management practices:
1. Financial Decisions and Controls
The organization's financial control and decision-making are greatly aided by financial management and managers. To develop the organization’s financial decisions, the financial managers employ ratio analysis, financial forecasting, profit, loss analysis, etc.
2. Financial Planning
The planning of the organization's resources and financial activities are the responsibility of finance managers. They make plans and budgets based on the information they find out about the organization's needs, priorities, and overall financial situation.
3. Control of Assets The financial management process is responsible for regularly estimating the organization’s capital requirements, determining the capital structure and composition, and choosing the capital funding source.
4. Cash Flow Management
Businesses must have enough working capital and cash flow to sustain their daily operational costs and unexpected expenses. Accounts payable and receivable are tracked by financial management to make sure there is always enough cash on hand for daily and emergency expenses.
5. Disposal of Surplus
The financial managers of the organizations make decisions on how the surplus or earnings of the organizations are used. They determine whether to pay dividends and how much should be paid out, and the percentage of profits that must be retained and reinvested in the company.
6. Financial Documentation Financial management uses all of the organization's financial records as a database for financial forecasting and planning. In addition, these records are necessary for their regular financial reporting in accordance with government guidelines.
7. Management of risks Financial management enables an organization to effectively anticipate risks, implement risk reduction strategies, and respond to unforeseen dangers and crises.