Maintaining good financial management in businessPosted on: July 21, 2021
An organisation’s chance of survival and growth is largely dependent on good financial management, and is one of the most important aspects of business whether that’s in a startup or a large enterprise.
This key aspect of business is one which should always become one of the core processes and should be included in ongoing planning, but what does financial management involve and how does a company ensure they stay afloat?
What is financial management?
Financial management is the planning, organising and controlling of financial activities in a business. This is often the responsibility of a finance department, headed up by a financial manager.
To be successful, financial managers will govern how incoming and outgoing transactions are processed to suppliers and from clients. They will carry out monthly financial reports to stay on top of all spending, compare actual spending to what’s been budgeted to avoid overspending, and ensure auditor and tax requirements are met.
On top of this, financial managers must also strategise what needs to happen financially for the company to achieve its long- and short-term goals, must have good decision-making abilities to decide the best way to achieve goals, and must provide up-to-date financial reports and data to ensure finances are controlled throughout the business and each department is operating within budget and aligning to the overall corporate finance strategy.
The main objectives of financial management
The main objectives of financial management are to maximise profits by providing insight on the rising costs associated with the business such as the materials needed to produce goods or the rent for workspace, and to improve corporate governance in organisations by compiling data and reporting internal activities to stakeholders like investors and the board of directors.
Financial management objectives also include tracking liquidity and cash flow to make sure the company has enough money to operate as planned, ensuring compliance with national and industry-specific regulations, and forecasting outcomes by developing financial scenarios based on the current state of the business compared to possible financial market conditions.
A finance department may also cover skills in financial analysis and financial control. Financial analysts guide businesses in decisions about spending money to attain profit by managing capital budgeting and making investment decisions in current and new assets and ensuring investments are allocated to profitable ventures and give good returns. They use data and forecasting compiled by the use of financial tools like Bloomberg which provides real-time data on financial markets to establish how to maximise profits.
A financial controller straddles accountancy, finance strategy, and leadership, and is responsible for risk management and profit and cost control, overseeing both the bigger picture and the finer detail of the overall financial management within a company.
What is financial planning?
Financial planning is the process of managing a company’s finances in line with the main objectives of successful financial management.
Through financial reporting and completing financial statements, planning is the process of determining how much capital is required for a business to operate effectively and ensuring all capital is spent in an efficient manner and accounted for.
A good financial plan is essential for a company as it keeps spending focused as a company grows and prepares for when new challenges arise or when unexpected crises hit. By having a clearly defined financial plan, clear expectations are set for cash flow and businesses are able to stay on track, it allows smart budget allocation, and enables cost reductions where necessary as it outlines areas where money can be saved and ways to put resources to better use.
By utilising effective financial planning, a company mitigates against any possible risks in potentially turbulent times, and creates a crisis response on how to deal with and reforecast for any unexpected financial problems.
How to maintain effective financial management
In order for a business to maintain effective financial management, there are a few key things they must do to avoid running into any financial problems.
Having a clear business plan from the start helps to establish where the business is and where the leadership team wants to go, detailing how the business and its activities will be financed. If a company is well established, checking in regularly with the business plan and the financing is essential. The financial section of a business plan is a key component as it will help to steer a business to success. If a company needs investors or a bank loan, a clear financial strategy in the business plan could make the difference between a win or loss. If additional outside funds aren’t needed, this part of the business plan is still essential as all businesses must spend money to gain a profit, so it is a tool to help a business to thrive.
By using a financial strategy aligned to the original business plan, a company should be able to regularly monitor their financial position against the targets set out to ensure it stays afloat, survives, and also grows.
Knowing the day-to-day costs of the business and forecasting future costs is also important, to ensure that wages, rent on office or store space, the financial means to produce goods or services, and other overheads are always covered, even if they rise in price.
Keeping up-to-date accounting records and meeting tax deadlines ensures expenses, debts and creditors are tracked, late payments aren’t missed, and fines for filing tax returns past the deadline don’t unnecessarily occur.
How to learn financial management
As financial management is such a crucial aspect of business survival, managers in all sectors are required to understand financial reports and make decisions on where and how finances are allocated.
On the University of Wolverhampton’s 100% online MBA Finance, you will learn all the essential real-world professional skills for financial management which you can apply to your current role or you can use when starting your own business venture.
Study this postgraduate qualification part-time and continue to earn while you learn, building professional skills needed to succeed with a business school that has been established for more than 80 years. Visit the MBA Finance page for further information on entry requirements, tuition fees, and the other taught modules.