Financial management
Here we will elaborate you the Functions of financial management its importance and objectives and How to do.
Financial management is a set of administrative processes for controlling, analyzing, planning and monitoring the financial activities of an organization.
Thus, through proper records and a control of financial resources, this management ensures that the company has enough money for the maintenance, investments and growth of the business .
In addition, it enables analysis of scenarios, definition of goals, deadlines and monitoring of results , always aiming at maximizing profits.
How important is it for companies?
Financial management is an extremely important factor for any company, regardless of its size or field of activity. Through it, it is possible to strengthen the organization and provide effective growth .
Still, with good management, the company manages to unite loose ends and maintain a more strategic administration , because it offers accurate data and reports so that the finance department and the board can act in an informed manner.
Thus, the manager can organize processes, collect data, plan finances, set goals and monitor results, in addition to reducing unnecessary expenses and allocating resources more assertively.
This type of management also helps to maintain the organization’s financial health in times of economic and political crisis . With a structured financial base, the company is better prepared to face possible difficulties, such as falling sales or rising raw material prices.
What are the objectives of this administration?
The main objective of financial management is to guide the organization’s decisions regarding investments, use of capital for innovation and payment of bills.
In addition, good management aims to ensure a better supply of products, a correct use of the company’s assets and solid planning for the balance of expenses and earnings.
But it is important to understand that planning must start with the final objective, that is, it is necessary to define which goals will be achieved and ensure that all financial administration is made based on the pre-established focus.
What functions are part of financial management?
Good financial management comprises some important functions to ensure your success. Below, we’ll explain each of them further.
1-Financial cash control
An important function for good financial management is cash flow control , in other words, monitoring all the company’s movements. It is important for the finance company to know exactly what went out and what went in, in addition to maintaining an organization listing dates and reasons for movements.
Tracking revenues, expenses, and investments helps finance and management understand what the biggest expenses are, what products or services make the most profit, and what the costs are to keep the business running. From there, it is possible to make more informed decisions, avoid unnecessary expenses and maximize profits.
2-Control of accounts payable and receivable
Another important function for financial management is monitoring the company’s commitments in relation to payments and receipts. This type of control is important to avoid term losses that compromise cash and generate fines.
But for this control to be efficient, it is important that finance companies look for ways to automate processes and use management software.
3-Financial planning
A strategic management requires a lot of planning to understand your objectives, goals and ensure better use of resources . For this, it is important that the company follow some steps, such as:
- understand the current situation of the organization in relation to finances, analyzing the history of billing, profits and expenses in recent months;
- set a financial goal to be achieved within a maximum period of one year;
- assemble a financial plan, defining what needs to be done so that the company leaves the current point and reaches the objective, for example, of reducing costs, increasing sales or investing;
- keep a follow-up to understand the financial performance and take action whenever necessary.
4-tax planning
Brazil has a high tax burden and, because of that, it is important that the company is also concerned about tax planning. This type of strategy aims to find legal ways to reduce tax burdens on organizations, which is not a simple task.
Thus, to do so, it takes a lot of study and planning, however, the results can bring significant savings.
5-Accounting
Accounting considers more than cash flow tracking. She is responsible for monitoring the company’s economic performance by looking at the organization’s assets, liabilities, and equity development. For this, it is necessary to use accounting tools, such as the balance sheet and the DRE.
6-Investments
Finally, another important part of financial management is related to investment analysis. This step should consider the return on each investment and analyze whether it is financially beneficial. Thus, it is essential that the finance company assess, for example, whether the purchase of new machines, tools or equipment will bring returns that justify the expenses.
How to do good financial management?
Financial management is a very important strategy to ensure the health of organizations . But after all, how to apply it in practice within the possibilities of the business?
The answer may vary according to the profile and needs of each company. However, there are some general strategies and rules that can be applied in all organizations, regardless of their size or field of activity. Now, we’ll explain each of them better.
1-Develop a structured plan
As we have seen, planning is a fundamental part of financial management. Through it, the manager and the board define goals and objectives to maximize profits and provide greater growth for the business.
When preparing the planning, it is important to adjust the goals to the context of the business reality and look for an achievable goal, but one that is challenging. After defining the objectives, the second step is to establish strategic actions to achieve the proposed goals.
Finally, consider what metrics will be used to track results, and don’t be afraid to make changes along the way if you see the need.
2-Implement a budget
In addition to planning, it is important that the manager also prepare a budget that indicates what resources will be allocated to the business . Thus, it is possible to have a total view of the management, identifying which sectors or activities are more important and need greater investment.
For an example, imagine that the organization is an online store. In this case, it is important that the majority of the budget be directed towards website efficiency and delivery logistics. On the other hand, it will not be necessary to invest such a high volume in the decoration of the work environment, as customers will not be physically served.
With a well-structured planning and budget, the company has better control over the finances of the business and is able to avoid the scarcity of financial resources and direct its funds to the expenses that are priority.
3-Automate processes
Betting on the automation of processes, such as payments and issuing invoices, is another important tip for efficient financial management. Relying on technology, the company is able to optimize slow processes and minimize human errors , which can generate extra financial costs.
Another advantage of automation is that it allows the finance department to have more time to act on strategic financial management , as it does not have to deal with repetitive and bureaucratic activities.
What are the main mistakes in financial management?
It is common for management errors to occur, especially when the manager is beginning to apply the strategy. However, knowing these flaws makes it easier to avoid them. Below, we highlight the main ones.
1-Lack of control
The main mistake that compromises financial management is lack of control and disorganization. Not keeping up with the stock, for example, can cause the company to have some money left over, which could be being invested in other demands.
In addition, the lack of organization of tax and accounting documents can also generate losses, including in relation to the inspection of public administration bodies.
2-Mixed personal and business accounts
Mixing personal and business accounts is a mistake that still happens in smaller organizations, in which the company owner is also the financial manager, however, this failure can bring damages to the business.
That’s because, this disorganization burdens the cash flow and can harm the company’s working capital . To avoid the problem, it is important to establish a pro-labore value and keep the accounts separate.
3-lack of priorities
Finally, another common mistake is lack of priorities. It is important for the manager to know the market in which he is inserted and the particularities of his business. Thus, it is possible to determine which activities have the greatest impact on results and direct investments more assertively.
What are the impacts of bad financial management?
Inefficient financial management can directly reflect on business results and cause many problems for the organization.
The lack of knowledge about the equity value and the lack of control over working capital, for example, can make the company’s activities unfeasible . When finance does not have information on cash balance, inventory, amounts payable and receivable, among other data, it can end up placing the organization in a debtor position.
This type of problem mainly occurs when the manager does not have the knowledge or experience to manage his finances strategically. In such cases, it is important to seek assistance from a consultant or invest in financial management courses to improve your knowledge.
