Financial management refers to organizing, directing, and control of commercial operations such as disbursal and procurement of revenue from the individual or business. It also comprises the application of particular principles to financial assets of the firm, and even playing a role in revenue management. The scope of financial management comprises financial decisions associated with raising money from different sources; the financing projects cost; and the prospective returns attained during the process. It also offers investment decisions in the current and fixed assets, which includes the working capital decisions.
Financial Management benefits
Joseph Stone Capital explains that sound financial management leads to enhanced visibility within the operations, and it assists understanding of the numbers at every level in the business or institution. The benefits of financial management ensure there is investor confidence. Investors are usually eager to look for signs of security in business operations. Efficient financial management enables for the correct balance between profit and risk maximization.
Financial management also supports better decision making. When the relevant facts are accessible easily because of organization and digitization, it becomes simpler to gain solutions based on the circumstances of the situation.
As an incredible advantage, financial management helps with taxation. Taxes have often been glared upon as one of the restrictions of financial system. There are exceptions and tax loopholes for enterprises and institutes which can be taken benefit of if the terms are satisfied. For example, a business can claim tax deductions based on their measure of office space.
Restrictions of Financial Management
One of the vital limitations of financial management services is the inflexibility it ensures within ventures. The standards of operation are fixed by including particular accounting parameters; but, when the tasks are done, the conditions can alter from the distinctive situation. The rules are not able to keep up with the lively changes in the market environment, and that leads to lost revenue and bureaucracy.
Similarly, applying practice standards of within a business or an institute comes with a price. It necessitates both software and hardware installation and orientation for the entire staff so they can adjust to the new system flawlessly.
Joseph Stone Capitals further adds that failing to plan the finances of a business or an institution leads to needless expenditure and eventual end. When it comes to financial planning, one of the most significant advantages is the ability to control costs. Financial planning also includes cash flow management, which means recognizing revenue needs periodically. If there is bad debt or slow payables, then it is possible to lose the capability to order services that maintain the enterprise.
Efficient financial planning also guarantees that the business stays on the right side of the law by budgeting for all affiliated taxation necessary to keep the institute tax compliant. Financial planning keeps the practitioner afloat and continuously out of trouble, barring an intense event.
Ultimately, financial and accounting statements do not measure things which do not have a financial value. Factors appropriate with a business such as customer loyalty cannot be expressed in financial figures irrespective of their importance. Other qualities like reputation and management ability also have no place in financial statements.
