Financial management is understood as the operational process of a company. It is a process of acquiring and utilising the funds effectively. In any company, managing the funds is the main goal. If you are starting a business, you would want to spend funds with proper planning. Similarly, business financial management is known as corporation finance.
Additionally, you must know the concept of financial management to become an expert. Business owners prefer to apply for short-term personal loans. They can help one to overcome urgent fund requirements.
Even at home, you must have seen your parents managing the overall financial expenses. In the same way, financial management is connected to disciplines. These are economy and accounting, among others. The basic concept is associated with economy, accounting, and manufacturing in addition to marketing, human resources, and quantitative techniques.Â
According to this news by Deloitte, the ability to generate and manage costs will be tested in new ways.
Goal Of Financial Management
Most firms target effective obtaining and use of finance results in appropriate financial growth. It is an important feature of the financial manager’s job. In conclusion, he must establish the key goals of financial management. These goals are classified into two parts:
- Maximising profits
- Maximisation of wealth
Application Of Financial Management
The concept tends to cover the complete range of activities and functions as mentioned below. Usually, the finance head is an essential advisor to the CEO. He/she also plays a strategic role. The duties will include the following:
- To find the overall fund amount needed for a given time frame.
- To invest the funds in each of these long-term and short-term capital requirements.
- Funding the day-to-day operating money demands of the enterprise.
- Â Paying creditors on time.
- Maintaining funds and satisfying profit to all stakeholders.
- Paying interest on debts taken from lending banks.Â
- Interfacing with capital businesses.
Two Basic Concepts Of Financial Management
Financial management means obtaining and managing funds. Also, the main function of financial management is to increase the firm’s value. So, what is the concept of financial management? To answer this, it includes two basic concepts of financial management. These are obtaining funds and utilising these funds.
1. Obtaining Funds
The main concept of financial management is to obtain funds. Finances for a company come from different sources. Therefore, obtaining funds is always challenging for businesses. Such funds vary in risks and costs. It usually controls the company’s management look into while obtaining funds. Additionally, it must make sure to obtain these funds at the lowest cost, along with ensuring balanced risk and control factors.Â
Funds raised through equity shares are the least risky, as there is no liability in repayment. However, there is one shortcoming of the funds obtained through equity. They are expensive because dividends that the shareholders expect are higher than the interest rates. Pre-existing shareholders’ shares may often be diluted if new shares are necessarily issued.Â
Banks and educational institutions can also offer funds. Such funds are concerned with restrictive pacts. These factors limit the borrower’s ability to obtain funds from any other kinds of sources.Â
The improved process is heading to a detailed examination of the end-use of resources. Such limits are significant to ensure the safety of funds given by institutions.Â
2. Utilising Obtained Funds Effectively
Another concept is using the funds efficiently. A financial manager makes sure of the correct utilisation of these funds. They are also essentially held responsible for monitoring these instances closely, especially where these funds are idle or misused.
Included in basic concepts of financial management, utilising obtained funds is the most significant. It can be considered a total waste of time and money. The funds taken are not used to create increased amounts of funds compared to purchasing costs. It must be utilised so that the firm receives the necessary profits. Making sure the firm’s financial stability is not sacrificed.Â
Conclusion
In a nutshell, financial management is understood as the implementation of general management principles. It is done basically to increase financial assets. Appropriate management and following the concept of financial management are crucial. As it offers quality fuel.
Additionally, consistent service of financial management ensures smooth operation. Suppose finances haven’t been handled thoroughly by an organisation; it will face problems that may hamper its growth and progress.