For those of you who have a business or business, you definitely need funds to fulfill business activities. Therefore, it is important to understand about financial management.
For this reason, it is very important for every company to implement strict financial management and use the best accounting software .
Because if financial management is not carried out properly, it can have an impact on the company’s overall performance.
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Starting from definitions, functions, goals, to tips on managing finances well in a company.
Definition of Financial Management
Financial Management is a vital and very important activity in every organization.
Financial management is the process of planning, organizing, controlling and monitoring financial resources to achieve company goals and targets.
This management is an ideal and effective way to control financial activities.
The use and management of finances is one example, the use of funds includes payments, risks, and all other things related to money.
Financial management is basically all efforts starting from planning, managing, storing, and controlling company assets and funds.
All activities must be carried out carefully, thoroughly and carefully, this is enabled to reduce the risks that may occur.
Therefore, companies need qualified supporting equipment, such as bookkeeping applications and financial reporting applications .
There are also several other definitions from several experts on financial management. Among them are:
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1. According to JF. Bradley
Bradley argues that management or financial management is an aspect of business management to manage company capital.
This is stated in his book entitled Administrative Financial Management.
Not only that, financial management must also consider the selection of sources of wealth owned by the company to achieve goals.
2. According to Joseph L. Massie
A different definition is explained by Joseph L. Massie, author of The Essentials of Management.
Massie explained that financial management is a business activity as a form of responsibility for obtaining and using company funds to achieve goals in an effective way.
3. According to Harry G. Guthmann and Herbert E. Dougall
Meanwhile, in the view of Guthmann and Dougall, the notion of financial management is an activity that is closely related to the planning, development, control and administration of any funds used in business.
Financial Management Objectives
The answer is yes! Of course it is very important.
There are several reasons why financial management is very important to implement in a company.
That’s because there are five main goals of the company when implementing this management, namely:
1. Keeping Cash Flow Smooth
The first objective is to ensure that the company has a smooth and healthy cash flow.
By implementing financial management, it can help companies monitor the amount of income or expenses.
Through monitoring or monitoring, the company can anticipate that cash flow will not end in a loss.
2. Improving the Efficiency of Using Company Finances
Every company plan related to finance, is closely tied to efforts to increase the efficiency of company funds.
You can carry out monitoring by eliminating costs that are considered ineffective and replacing them with more profitable activities.
3. Increase Company Profits
Financial management can also be used when you want to achieve the company’s main goal, which is to achieve higher profits.
You can achieve this by implementing careful financial planning.
4. Facilitate Capital Structure Planning
By using financial management, you can also more easily plan the company’s capital structure.
Here, the company can adjust the capital composition to balance the company’s equity and debt.
5. Ensuring Investment Security
The ultimate goal of implementing financial management is to assess the level of security in investment activities within the company.
That way, the company’s investment can provide positive returns on increasing profits.
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Financial Management Principles
The following are some of the principles of financial management in making company decisions, including:
- The principle of prudence (prudence) : financial decisions based on accurate and reliable information and taking into account the possible risks and uncertainties of the decision.
- The principle of independence (autonomy) : this principle is a form of independence to make the right financial decisions without interference from other parties.
- The principle of adequate return (adequate return) : investment decisions on the basis of the company’s goal to achieve an adequate return on the risks taken.
- The principle of liquidity (liquidity) : Companies must have sufficient liquidity to meet financial obligations at a predetermined time.
- The principle of efficiency (efficiency) : The company’s financial management must be efficient including unnecessary costs.
- Principle of consistency (consistency) : Decision-making for finance must be consistent with company goals and financial management principles.
- The principle of transparency (transparency) : the company’s financial reports must be transparent and reliable so that there is accurate information for the benefit of the company.
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Financial Management Function
In addition to having goals, there are five financial management functions that are implemented in a company.
What are the functions? Here’s an explanation!
1. Estimating Capital Adequacy
The existence of financial management allows financial managers to predict the company’s capital adequacy.
This is done by assessing the estimate correctly so that it can increase the company’s revenue capacity.
2. Assessing Capital Composition
After your company has made an estimate, the next step is to determine the capital structure.
This stage requires an analysis of the ratio of debt to equity in the short or long term.
Well, you can get reports on ratio analysis by applying proper financial management.
3. Helping Companies in Making Decisions
The next function of financial management is as a reference for the company regarding decisions to choose effective and efficient funding sources.
Apart from the capital owned by the company, there are several choices of funding sources from third parties that can be obtained with the right funding sources.
These external source options include issuing shares, bank or financial institution loans, and debentures.
4. Manage Cash Flow
Financial management also plays an active role in managing the company’s cash. Cash is very important for companies because it can be used to pay employee salaries, monthly bills, liabilities, raw material expenses, and so on.
5. Controlling Finances
The ultimate goal of implementing financial management is to control company finances.
There are many ways that can be done as an effort to control company finances, such as financial analysis, cost and profit control, ratio analysis, and others.
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Tips for Managing Finance for Your Business
After understanding what financial management is and its functions and objectives, now it’s your turn to understand tips on managing finances for a business.
The following is an explanation of what tips you can do to manage your business finances!
1. Have a Clear Business Plan
The business plan will define where you are and where you want to direct your business over the next few years.
Therefore, financial management must contain details of how you will fund your business, along with the type and origin of the funds you need.
2. Monitor Your Financial Position
You should monitor your business progress regularly. Every day, you should know how much cash you have on hand, how many sales you are making, and your inventory levels.
You also need to regularly review your business position against the targets set in the business plan every month.
3. Ensure Customers Pay On Time
Businesses can get into big trouble due to late payments by customers.
To reduce this risk, you must make your credit terms and conditions clear from the start.
Apart from that, you must also issue clear and accurate invoices promptly. Using a computerized credit management system.
That way, you will be assisted in tracking customer accounts.
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4. Keep Accounting Records Updated
If your account is not updated, you may run the risk of losing money due to not being aware of late customer payments.
In addition, you may also not realize when you have to pay your supplier.
That is why you need to use a record keeping system so that it can help you keep track of expenses, debts and creditors.
Not only that, you can also save time and money.
Exceeding the deadline for paying taxes can result in fines and interest.
This of course will be an expense that shouldn’t be needed because it can cut future financial plans.
Therefore, it is important for you to fulfill your tax obligations on time.
6. Stock control
Efficient stock control will ensure the right amount of stock is available at the right time so that your capital is not wasted on unnecessary expenses.
You must implement a system to track stock levels to meet customer demands. Use an inventory application that has a notification system when stock is about to run out, making it easier to control.
So, that was a discussion about company financial management that you need to know for the progress of your business or business.
Starting from the understanding, function, purpose, tips that you can practice.
Hopefully, understanding the explanation of this article can help you find references related to financial management.