Financial management is the process of planning, monitoring, and controlling a company’s finances. Financial management also includes financial services such as banking and accounting. Planning finances serves as an umbrella function that integrates your entire business plan. It gives you a bird’s-eye view of how your business will grow over the next few years and beyond.
What purpose does financial management services in business?
Planning finances helps you align your financial strategies with your business plans so that you can track results more easily and make informed decisions based on past performance. When you understand what goals you want to achieve, how much money it will cost to accomplish those goals, and how much time it will take, it becomes easier to establish the best course of action for your company.
Financial management also provides resources that help support operations like accounting and budgeting software. These resources assist employees in recording transactions and tracking financial assets, liabilities, cash flow, and budgets for specific activities or programs within a company.
This assists employee in making informed decisions related to spending money on operational activities without regard to its financial impact on the future operation of the company because it prepares them for situations they may encounter when performing operational activities.
What is financial accounting?
Financial accounting is the art and science of recording transactions, analyzing them, and reporting them in financial reports. These reports provide information about the financial state of a company. They are important to make informed decisions, as they show what is going on in the business, where it stands financially, and what it needs to keep its operations running.
Financial accounting is conducted by a set of specialized staff members who are responsible for recording transactions, analyzing them, and reporting them in financial reports. These reports provide information about the financial state of a company. They are important to make informed decisions, as they show what is going on in the business, where it stands financially, and what it needs to keep its operations running.
Why is financial management important?
When you run a business, you have to make decisions based on incomplete or inaccurate information. If you don’t know where you are, it is difficult to know where you are going. When you don’t have timely and complete information about your financial state, you may make poor decisions. Inaccurate information leads to mismanagement which can lead to financial losses. The sooner you begin financial management, the sooner you can start making informed decisions and correcting the problems that have developed.
Three types of financial statements
The most basic type of financial statement is a balance sheet. This lists assets, liabilities, and equity on the left side of the page and shows the current state of the company’s finances. The left side of the ledger includes assets such as cash, accounts receivable, inventory, etc. It also lists liabilities such as accounts payable, long-term debt, and loan interest. Equity is the difference between the total assets and total liabilities. It indicates how much money the company has.
A financial statement that uses equity to show the financial health of a business is a balance sheet. The next level of the financial statement is an income statement that shows the sources and uses of funds for a business. It separates revenue from expenses to show the profit or loss of the company. The income statement is also known as the “statement of operations.”
Importance of balance sheet
A balance sheet shows the financial condition of a company at a given time. It is usually referred to as the “ledger” or “scoreboard” of a business, as it provides a comprehensive overview of all accounts receivable, inventory, and accounts payable owed by the company. The more accounts payable there are, the less the number of assets on the balance sheet. If there is less value on the balance sheet as compared to the number of accounts payable, then the business is in financial difficulty.
Importance of cash flow statement
The cash flow statement shows how much money the company is making and how much it is spending. The sources of revenue, such as sales and interest earned, should equal the amounts of expenses, such as expenses of running the business, salaries, and other costs of doing business. A business that is not generating enough money to cover its expenses is in financial distress.
How to calculate net income?
To calculate net income, subtract the interest paid on debts and subtract the taxes paid to the government. You can also add back any expenses that you did not subtract. If you subtract interest and taxes but add back the costs of running the company, the result will be negative. This will indicate a loss.
Summarize cash position and liquidity statement
The cash position shows the amount of cash on hand. This can be in the form of currency, a checking or savings account, or a money market or investment account. The liquidity statement represents the amount of cash that will be available to repay debts and pay for operations if someone has to pay with cash. If the company is riskier than some of the assets it has pledged as collateral, the company will have a negative cash position.
Treasurer and controller
The treasurer is responsible for the financial operations of the company. He or she oversees the financial staff and ensures that financial operations are performed by policies established by the board of directors. The controller is responsible for monitoring the performance of the treasurer and ensuring that the company’s financial policies are followed. Financial managers also have specific responsibilities that include the following:
Responsibilities of the treasurer and controller
• Ensuring that the financial operations of the company are being performed by policies established by the board of directors and by government laws and regulations.
• Monitoring the financial position of the company to ensure that it has adequate funds available to meet its obligations and to make money available for future growth.
• Controlling and auditing the financial operations of the company to ensure compliance with policies established by the board of directors and applicable laws.
• Preparing financial reports, such as the balance sheet, income statement, cash flow statement, and liquidity statement.
• Maintaining financial records, such as accounting records, payroll records, and inventory records.
Conclusion
Financial management is an important function of any business. Without proper financial management, businesses can struggle to keep up with their obligations and repay debt. A good financial manager can make a huge difference in the success of a company.
