When I started on my journey in the Army and later post hanging my boots in the civvy street, I realized that Financial education was a crucial part of the process. When I was working, my only concern was about my salary and, my mindset was how can I increase my income. I really couldn’t think beyond that and was looking for avenues to increase my returns on investment (ROI).
The problem with investment is that most fear and greed drive it. Both of these have the power to overwhelm our ability to think logically. Therefore, understanding finance and its management are crucial for business survivability. Financial management is one of the prime responsibilities of owners and business managers. It helps entrepreneurs understand the overall financial health by keeping an eye on the profits, cash flow, and other expenses.
Most start-ups encounter initial negative cash flows during early periods. Financial management is crucial for growth during this period. An entrepreneur must be aware of their burnout rate. Besides, they should look after the capital needed to sustain the business proposition profitable.
Financial management refers to the strategic planning, organizing, directing, and controlling financial undertakings in an organization or a start-up. It also includes applying management principles to the financial assets of an organization while also playing a vital part in fiscal management. Take a look at the objectives involved:
• Maintaining enough supply of funds for the organization;
• Ensuring shareholders of the organization get good returns on their investment;
• Optimum and efficient utilization of funds;
• Creating better and safe investment opportunities to invest.
Financial management includes the following element -
Financial planning - is the process of calculating the amount of capital that is required by an organization and for the allocation of its resources.
The financial plan includes certain specific objectives, which are -
• Determining the amount of capital required;
• Determining the capital organization and structure;
• Framing of the organization’s financial policies and regulations.
• Financial control: This is one of the key activities in financial management. Its main role is to assess whether an organization is meeting its objectives or not. Financial control answers the following questions:
• Are the organization’s assets being used competently?
• Are the organization’s assets secure?
• Is the management acting in the best financial interests of the organization and the key stakeholders?
• Financial decision-making: This involves investment and financing concerning the organization. This department takes decisions about how the organization should raise finance, whether they should sell new shares, or how the profit should be distributed.
Now it is vital to understand the importance of Financial Management. Let’s take a look at some of the reasons -
• Helps organizations in financial planning;
• Assists organizations in the planning and acquisition of funds;
• Helps organizations in effectively utilizing and allocating the funds received or acquired;
• Assists organizations in making critical financial decisions;
• Helps in improving the profitability of organizations;
• Increases the overall value of the firms or organizations;
• Provides economic stability;
• Encourages employees to save money, which helps them in personal financial planning.
The next thing is to understand the importance and benefits of financial management. Let’s quickly move to see in greater detail because financial management is crucial for businesses to achieve success -
- One of the most common reasons for businesses to fail is the unavailability of an accurate, viable and comprehensive financial plan. It makes them fall prey to various financial mistakes like overestimating revenue or ending up with a negative cash flow.
The financial management process, in essence, identifies financial opportunities and risks, to help business executives stay informed and make better financial decisions focusing on strengths weaknesses.
- one of the prime responsibilities of the financial management process is to identify safe, secure, and profitable investment opportunities for businesses to ensure a regular flow of capital. Without a definite financial plan to raise funds, investors and lenders will be unwilling to invest in your venture. Alternatively, with a business plan, businesses get to improve their reputation with investors by offering them detailed insights about how they will be raising capital for their venture.
- A successful business isn’t all about raising capital. Instead, it also involves optimizing the expenses against the sales targets, investing profits wisely, and avoiding taxation and bank charges. The best way to reduce business expenses is by having a clear understanding and visibility of the finances. With the right financial management solution, businesses can create effective approaches, to minimize expenses and identify saving possibilities.
- Businesses need to know their starting point to be able to measure success. With robust financial planning, businesses can quantify their performance. This can be done by measuring their performance against the set benchmarks/indicators, thereby enabling help to optimize strategies for future growth and expansion.
- With accurate financial management services, businesses are not only able to measure success, but also identify areas of weakness. In turn, it helps them to optimize lowly performing business areas and take necessary measures for improvement.
- Financial management helps businesses to improve their understanding of market trends. They keep business executives informed about the high-performing and low-performing areas. Also, financial management enables them to identify market patterns and improve their financial decision-making capabilities.
The financial management process also helps business executives to improve their understanding of marketing strategy by monitoring effective strategies and identifying haemorrhaging strategies.
With such high stakes and significance, the best way for businesses to keep up with their finances is to hire the services of professional financial management experts. With so much already on the shoulders of the in-house team, it’s always better to get on board a professional consultant. An industry expert, who brings the external perspective, cutting-edge modern tools as well as first-hand experience of getting things done. To help better manage your finances and transform your business into a success story.
Are you a budding entrepreneur or start-up seeking more guidance and inspiration on growing your business and protecting your business ideas, products, or services?
You’re in luck – Tarun Kumar hosts a string of workshops, talks, and one-on-one
engagements. Click on the links below to book a slot and be successful.
Col Tarun Kumar (Retd)