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?
What is Financial Management?
Difference between Financial Management and Accounting Management
Types of Financial Management?
Personal Financial Management:
Corporate Financial Management:
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:
Importance of Financial Management
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.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.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.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.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.
Goals of Financial Management
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
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?
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.
Financial Management Strategies
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.
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.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?
Leadership Skills:
Analytical Skills:
Communication Skills:
Good Organizational Abilities:
Technical Skills:
Tasks of a Financial Manager
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.