In this blog, I will tell you the Importance of Financial Management in a systematic order of professional management...
Financial Management is the part of the management who work for the financial situations of the organization or any business company. It helps to manage the finance related things of the business in an efficient and effective manner.
Finance Management is largely associated with the allocation, arrangement, and management of funds for the achievement of organizational objectives. It is also a combination of two words, the first one is “Finance” and the second one is “Management”.
Essential Importance of Financial Management in Business:-
The importance of financial management is also known as the basis of financial management can be described as follows:
- Important for Managers,
- Important for Investors,
- Important for Shareholders,
- Important for Financial Institutions,
- Important for Employees or Workers,
- Important for Society.
In this concept, I will tell you the importance of strategic financial management in points-wise..
1.Important for Managers-
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This is the primary importance of financial management and it means the finance is a very major concept for the overall organization members such as directors, top level executives, middle-level executives, low-level executives and as well as every and each level of managers because they are helping to our organization for achieving the particular objective is related to the financial terms.
These executives and members are nervous system and backbone of the organization. This importance includes various points like:
- It helps to decide the financial situations,
- It includes overall efforts of all members,
- Decision-Making Process,
- It helps to structure the financial plan,
- Make financial strategies,
- It helps to utilize all resources.
2. Important for Shareholders-
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This is the secondary importance of financial management and it means, shareholders are the real or part owners of the company and it holds the particular share part of the company.
In the organization, the proofs of financial statement and its affairs are given by the company to the shareholders. The proofs are the balance sheet and profit & loss account.
On the other hand, the full-time directors will give them the assurance to the shareholders for the protection of the company from other illegal things and sources and on the other hand will allow them to give suggestions at the board meetings. This importance includes various points like:
- It provides insights into the balance sheet,
- It provides insights into the Profit & Loss account,
- and other financial statements.
3. Important for Investors–
This is the third importance of financial management and it means, investors are the biggest source of funds for the execution of proper capital structure because they invest the money or savings in the form of Public Deposits, shares, and Debentures issued by the company.
On the other hand, some other aspects of financial management will help the investors for teaching or guiding about the savings and deposits in the organization also. This is also known as Investment Advisors.
This importance includes various points like:
- It works as an Investment Advisor,
- It is the biggest source of funds,
- and as well as the financial pillar for the organization,
- Management Decisions.
4. Important for Financial Institutions-
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This is the fourth importance of financial management and it means, these institutions are also the source of finance funds for our business because they provide capital to business enterprise or company through under the process of financial management to make a sound choice of industry, investment decisions, and several sectors or firms for such investment policy.
Financial Institutions includes commercial banks, internet banks, credit unions, and so on. This importance includes various points like:
- Provide funds,
- Source of capital,
- It helps to monetize your business.
5. Important for Employees or Workers–
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This is the fifth importance of financial management and it means, employees are the backbone of any company or business and these are interested in more benefits or merits which involves costs in terms of monetary transactions.
When the employees and unions create some conflicts with the objective or profit of the organization than the financial management will help the organization for maintaining the bargaining level of the employees and it also helps to protect the interests and smooth working of the business.
6. Important for Society-
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This is the sixth importance of financial management and it means, society wants business firms to work towards long-term growth perspective. A business company is focused on the optimum utilization of resources and also focuses on those things who does not adversely impact on the society and their environment.
This format or concept is also known as “Corporate Social Responsibility” which helps in the proper development of business towards the different sectors like society.
Thus, Financial Management is also helping to identify the sector of politicians, economies, social workers, sociologists and other sectors of the society which is helpful for public money and keeping from other illegal or adverse impact on society. This importance includes various points like:
- It helps to protect from adverse impacts,
- Follow the public policy,
- It helps to identify the sector of politicians, social workers, and so on.
How the Importance of Financial Management in Business Planning and Controlling Works:-
After the discussion of several important terms of Financial Management, I am telling you about the Importance of Financial Management in terms of business planning and controlling-
For Business Planning-
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Planning is the process of forecasting several works, programmes, and policies for the welfare of any organization and another corporate sector. It is also the formation of companies goals or objectives and their policies to achieve the pre-determined goals. It includes various major points for the purpose of fulfilling the planning ratio:-
- Determining Financial Objectives-
This is the primary factor for determining the business planning and it means it formulates or associates the companies objectives with the profit and wealth maximization policies of the company. It helps the company for managing the financial associates and connections also.
- Formulation of Policies and Procedures-
This is the second factor in determining the business planning and it means it helps to identify the process, working style, and rules & regulations of the company. In this factor, policies indicate the guidelines and procedures indicates the rules and regulations of the internal operations.
- It helps to design-
This is the third factor in determining the business planning and it means it helps to design the capital structure of the company and provide helps to prepare the financial plan of the company.
For Business Controlling-
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Controlling is the process by which the company can assume the proper execution of plans and policies of the organization (like the benefits and drawbacks of planning). Although, Financial control is totally based on the proper budgetary control system through which the exact cost can be kept within limits and focuses on the budgetary profits for the purpose of earning.
It includes various major points for the purpose of fulfilling the planning ratio:-
- As per the plans-
This is the primary factor in determining the business planning and it means every time and every type of control is totally based on their plans because without any plan we can’t reach the proper execution or control for the business operations. It also helps to design the financial or capital structure of the company.
- Create a Comparison of actual performance with the pre-determined standards-
This is the second factor in determining the planning and it means plans always the 20% things to determining the special and objective and 80% is based on their control. Thus, actual performance works with the standards of the company to formulate that performances are performed according to the pre-determined plans.
- Follow-up action-
This is the third factor in determining the planning and it means to follow up system is also known as the feedback of any person or corporate. It helps the plans for checking the effectiveness of the corrective actions and measures for establishing the perspective object.