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How Financial Management Helps You Achieve Your Company's Goals?

Financial aspects are crucial for any business. As an entrepreneur, you must understand what financial management is and how it affects your business's success. Financial management involves making specific financial and investment decisions to determine profit size, manage funds, and enhance the business's market value. But what exactly is Financial Management?

How Financial Management Helps You Achieve Your Company's Goals?

Table of Contents:

What is Financial Management?
Difference between Financial Management and Accounting Management
Types of Financial Management?
Goals of Financial Management
Main Sections of Financial Management
Skills of a Financial Manager

What is Financial Management?

Financial Management is the process of planning, controlling, and making financial decisions related to obtaining funds, whether for individuals or companies, through various financial activities such as long-term and short-term loans and issuing shares. It also involves determining the best way to use or invest these funds to achieve the financial goals of the institution, which include maximizing market value, achieving financial profit, and providing liquidity to meet various administrative activities.

It is one of the primary departments in all businesses, regardless of size. It ensures optimal utilization of funds and achieves the desired social goals. Recently, there has been a growing interest in financial management due to factors such as intense competition, inflation, company mergers and liquidations, the need for financing projects, increased commercial bankruptcy rates, and other reasons.

Difference between Financial Management and Accounting Management

There is often confusion between financial management and accounting management due to their shared use of financial data. However, there is a significant difference between the two. Accounting management focuses on collecting, summarizing, and creating financial statements, such as income statements, balance sheets, cash flow statements, and shareholder equity statements. On the other hand, financial management focuses on analyzing these financial statements to make improvements, achieve business goals, manage financing and investments, and avoid financial risks.

Types of Financial Management?

Personal Financial Management:

Personal financial management relates to individuals, involving determining how to generate income, finding the best ways to increase it, and investing this money. This involves comparing available investment options, such as purchasing real estate, shares, gold, or starting a business.

Corporate Financial Management:

This refers to the financial management of for-profit businesses and involves planning, organizing, and making financial decisions for the business to achieve its financial objectives, including maximizing owners' equity and solving liquidity issues. Corporate financial management is more complex due to the larger volume of data and risks involved. Its success is directly linked to the success of the business and the achievement of its objectives. It is divided into two main types:

  • Strategic Financial Management: Focuses on strategic methodologies and data collection and analysis processes to forecast the future and identify the best investment opportunities, ensuring business growth and sufficient flexibility to withstand future changes.

  • Tactical Financial Management: Deals with daily tasks executed by the financial manager or the financial management department, such as recording and auditing accounting transactions and analyzing financial statements.

Public Financial Management:

Public financial management is financial management at the national level, where government budgets and reports are the governing factor for future years. Financing methods differ from private sector activities in their reliance on taxes and government production. The goals also differ in prioritizing the well-being of society.

Importance of Financial Management

Financial management becomes increasingly crucial as the size of the organization grows and management focuses on achieving larger objectives. The most important aspects of its significance include:

  1. Estimating Fund Size:

    Financial management plans and estimates fund size using a set of methods based on financial planning. It determines the funds needed by the business to achieve its set goals. This has a significant impact on organizing the company's wealth, solving payment difficulties, and avoiding high interest rates.

  2. Determining Methods of Obtaining Funds:

    One of the key areas where financial management plays a role is financing. It determines the most appropriate way to finance business activities by comparing available options and choosing the best based on repayment schedule, interest rate, impact on liquidity, and other factors affecting the overall success and growth of the business.

  3. Examining How to Utilize Funds:

    Financial management plays a key role in identifying the appropriate method for deploying the funds the company has obtained, focusing on achieving a suitable return on invested capital while minimizing risks. This involves comparing available options and choosing the best, serving as a powerful tool to help the company invest its money optimally compared to available investment options, maximizing profits, and securing the best investment opportunities.

  4. Monitoring Financial Operations:

    Financial management collects and records all financial information and details of the business, summarizing them through financial statements to monitor cash flow within the company. This helps solve issues such as financial hardship, weak liquidity, or merger problems, even identifying the most suitable and effective financing methods while considering the company's current situation and risks.

  5. Coordinating with Other Departments:

    Businesses have multiple departments, such as marketing, production, human resources, and others. Each department needs funding to manage and execute its specific activities. For example, the marketing manager needs funds to implement the marketing plan, and the human resources manager needs funds to pay salaries.

This is where financial management shines as the beating heart and coordinator between these departments, ensuring they are integrated into the financial cycle to execute their tasks optimally. If you have a company or business, you can hire a financial manager through Mustaqil, the largest Arabic freelance platform, to manage your business financially and achieve your business goals.

Goals of Financial Management

The need for financial management arose from specific goals that institutions and companies strive to achieve, as outlined below:

  • Profitability Increase:

    One of the main goals of financial management is to consistently maximize the company's profits by identifying sufficient funding, seeking the best financing options, and identifying investment methods that provide the highest return for the business with the least possible risks.

  • Providing Adequate Liquidity:

    Financial management aims to provide sufficient cash flow to strengthen the business's ability to pay operating expenses and short-term and long-term obligations, create balance between different departments, handle emergencies, and avoid production or company shutdowns.

  • Maximizing Business Wealth:

    Maximizing business wealth means improving the market value of the company's stock or maximizing shareholder equity.

  • Risk Avoidance:

    Financial management significantly contributes to identifying, analyzing, and working to avoid financial risks, such as financial hardship or high interest rates, by determining the best financing options based on statistical measures and equations.

  • Achieving Social Responsibility:

    Social responsibility is a primary goal of any organization. Here, financial management contributes to providing products at the best prices for buyers, in addition to high quality, and investing in new ventures to increase job opportunities.

Principles of Financial Management

Financial management adheres to a set of principles that govern its operations within any institution, contributing to achieving desired goals:

  • Binding:

    All decisions made by financial management are critical and binding on all other departments within the business. They cannot be reversed due to their impact on the institution's operations and existence.

  • Accuracy:

    Financial management relies on accounting data collected and summarized in financial statements. This necessitates the accuracy of this data to make sound decisions.

  • Interconnection:

    Financial management intertwines with all other departments in the business, including marketing, production, accounting, development, human resources management, and others.

  • Speed:

    Financial management decisions and efforts must be available when needed to plan, organize finances, assess financial risks, and avoid them.

  • Continuity:

    Financial management should be present even when the company's financial situation is good and has the ability to meet its expenses and repay its debts.

What are the Main Sections of Financial Management?

Financial management is a separate department within an organization, but it comprises several sub-departments that perform complementary tasks:

  • Accounting Department:

    Responsible for recording all commercial transactions within the company, organizing and summarizing them in the form of financial statements including profit and loss statements, the company's balance sheet, shareholder equity, and cash flow statements.

  • Auditing and Review:

    This department audits the information and statements provided by the accounting department, reviewing and correcting all incoming and outgoing transactions of the business to make accurate decisions in the future.

  • Disbursement Department:

    Disburses necessary dues to other departments within the company to ensure smooth operations and avoid the risk of stoppage.

  • Financial Services:

    Employees in this department pass information and financial management decisions to other departments.

  • Financial Planning Department:

    Responsible for preparing budgets and future financial and investment plans for the business.

This is only a glimpse, as the financial management departments are more diverse based on the nature of the business. We might find a department dedicated to cash, another for credit, another for archives, another for cost accounting, and so on.

Financial Management Strategies

While financial management makes decisions in the present, it also has long-term strategies, such as:

  1. Investment Decisions:
    Financial management continuously plans to seek the best investment opportunities to strengthen the business and contribute to improving its profitability. Here, financial management takes a series of steps to choose the type of investment from a set of options, such as shares, bonds, mortgages, and others. This also includes additional decisions, such as:

  • Improving and enhancing current assets.

  • Balancing profitability and liquidity.

  • Entering new projects.

  • Comparing the projected future returns of different investments.

  1. Financing Decisions:

    While financial management focuses on developing a successful investment strategy, it also sets out to compare financing options based on current risks, predict future risks, and identify alternative financing options that are safer, building and managing working capital effectively.

  2. Profit Distribution Decisions:

    When will profits be distributed? How much will be distributed? These questions are addressed within the company's profit distribution strategy. Financial management sets clear guidelines for the timing and amount of profit distribution, when profits will be reinvested and retained, and whether they will be distributed in cash, shares, or goods.

What are the Skills of a Financial Manager?

The financial manager is the head of the financial management department within the company and manages all of its strategic efforts. Therefore, they must possess specific skills to achieve the best desired outcomes. These skills include:

Leadership Skills:

The financial manager leads a team of accountants, auditors, and reviewers who collectively form the financial management department. Therefore, the financial manager must possess leadership skills to ensure task coordination, improve productivity, and boost employee morale, contributing to achieving the company's financial goals.

Analytical Skills:

Most financial decisions rely on financial analysis and understanding financial statement data to effectively use them for future forecasting, risk analysis, and making financial and investment decisions. Without analytical expertise and a deep understanding of financial statements and ratios, the financial manager will not be able to achieve this.

Communication Skills:

The financial manager must possess strong communication skills to convey information accurately to other departments related to financial decisions, ensuring task coordination within the financial management department of the business.

Good Organizational Abilities:

The financial manager handles a vast amount of documents, data, and files, necessitating strong organizational skills to organize these files optimally and ensure access to the required data as quickly as possible when needed.

Technical Skills:

With the significant digital transformation witnessed globally, most companies have shifted to recording financial transactions digitally and managing them through specialized programs and applications. Therefore, the financial manager must possess the technical skills necessary to utilize these programs effectively.

Tasks of a Financial Manager

The financial manager is responsible for a set of tasks that they perform themselves or through the financial management department they head, such as:

  • Data Analysis:

    The financial manager analyzes the financial data provided by the accounting department and uses accounting ratios to understand the company's financial health and make necessary financial decisions.

  • Financial Planning:

    The financial manager develops financial plans for the company related to financing, investment, and potential risks that must be addressed through budget preparation and analysis.

  • Report Submission:

    The financial manager submits reports to management and stakeholders to inform them of the business's financial status, future decisions, potential risks, and to follow up and audit any errors that may occur.

  • Risk Management:

    Financial risks are among the most impactful types of risks on business activities and their ability to meet their financial requirements. Therefore, the financial manager contributes to developing financial risk mitigation strategies, market and competitor analysis.

  • Making Financing Decisions:

    One of the primary tasks of the financial manager in any business is to establish the project's financial structure by identifying the most appropriate financing tools, how to obtain and manage them, and comparing them.

In Conclusion, financial management is a fundamental department in any organization, large or small. It even extends to government institutions because it defines the elements of financing and managing funds optimally, searching for the best investment opportunities to achieve business objectives.