Have you ever been worried about how to spend your money? Imagine if you stopped managing how much you spend and how much you save. You probably weren’t be left with any money at the end of the month! This is why it is important to keep track of your money and keep a budget.
Businesses are no different. The way they take care of their money and other assets is called financial management in business.
You may be seeking finance dissertation help, and wondering what financial management actually is. Several economics dissertation writing services are available to help you understand the concept. You can also apply this to your personal life and never be in a tricky situation regarding your money again.
What is financial management?
Before you understand how financial management is so important, it is important you know what financial management is. It is a way in which businesses strategically plan and organize their finances (London School of Business and Finance, n.d.).
The word management is used here, which means that this process also involves applying principles of management to business finances.
So why do businesses go through the trouble of doing all that?
Basically, businesses are trying to make sure that they have enough money at all times to keep running their processes. But that is not all, they also want to make sure that their shareholders pay their dividends.
They also want to cut their costs and come up with the most efficient way of spending money, and they are always on the lookout for good investments.
What are the types of financial management?
Capital budgeting
This is where businesses allocate a certain budget to different areas and departments to achieve their goals. This is well thought out and planned to meet the needs of the business, keeping their resources in mind.
It is much like the budget you would make if you divided your funds according to different activities, such as entertainment and utilities.
Capital structure
These are related to spending on business growth. Taking loans with interest rates are low and getting funding from financial companies are ways of doing this.
This is similar to if you wanted to buy a new house, you could take a loan to do so just like a business would.
Working capital
This is where a business needs to make sure it has enough cash in hand to work on its daily operations, such as getting supplies. This is similar to how you would want to make sure you have enough money to eat or pay for transport to work.
Why is financial management so important in the business world?
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Businesses need financial planning to run successfully
Businesses need to plan out their expenses and revenue to make sure they can be successful (University of Portsmouth). Without it, they wouldn’t be able to budget and plan how they will spend their money on each process or department.
They could actually end up losing money or spending more than they need to! Without financial planning, businesses would not be able to survive.
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Businesses need funds to improve their processes or to grow
In order to achieve growth, businesses need to invest. They can also take loans from banks and financial companies. By improving the capital structure of the business, financial management. They need to determine what the best possible source of investment is for them. The aim of most businesses is to grow, and good financial management can help them do that efficiently.
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Businesses need to make financial decisions that could make or break them
Critical financial decisions involved many aspects. Businesses often find themselves in situations where they need to make choices between how to spend and where to invest.
They could also be looking to take up innovative processes such as new technology. They can’t simply do that without first assessing how it will affect them financially. By doing financial management, businesses can make these decisions in the most optimal manner.
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Businesses need to be more profitable
Most businesses are set up to make a profit. For example, if you sent up a small bakery, you are doing so in the hopes that it will give you more money than what you have invested in it.
To make a business profitable, businesses need to manage their costs efficiently. Financial management can help them reduce their costs and increase their revenue, and in this way, businesses can end up increasing their profits.
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Financial management aligns the actions of all departments with business objectives
Most businesses have several departments. Even in small businesses, you are likely to find a few. Financial management is necessary for all these departments.
They need to make sure they are spending with the objectives of the businesses in mind, such as growth and increased profits. For example, the marketing department needs to determine how much to spend on advertising. They need to do this with the goal of maximizing the profits for the business, which be done through financial management.
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It could help employees apply these principles to their personal finance
Financial management in businesses can also help employees learn the principles of management and apply them to their personal lives. For example, you could learn to invest in stock or other companies by looking at the best source of investment. You could also become better at managing your personal expenses by learning from the business. You could also learn the importance of saving your money. So, financial management is not just important for the business, but also for people!
Some final words
Now that you have an idea of what financial management is why it is so important, you can become better at managing your money.
If you are thinking of establishing a business, do not forget to make clear financial plans for the short and long term. Good financial management can lead you to success in your personal and entrepreneurial life!
