Financial Management: Definition and Goals in Business

financial management

Every company needs to apply clear rules in making any policy, primarily if the decisions taken are related to finance. For this one aspect, every company will use strict financial management. Because if financial management is not implemented correctly, it can impact the company’s overall performance.

Definition of Financial Management According to Experts

In a simple sense, financial management is an effort to plan, manage, store and control company assets or funds. Implementation must also be done carefully so as not to cause problems in the future. Therefore, the company requires qualified supporting equipment.

Besides, there are also several other definitions from several experts related to financial management, namely:

1. Harry G. Guthmann and Herbert E. Dougall.

In the view of Guthmann and Dougall through a book entitled Corporate Financial Polis, Understanding Financial Management is an activity that is closely related to planning, development, control, and administration of any funds used in business.

2. J.F. Bradley.

Meanwhile, J.F. Bradley has different definitions of financial management. In a book entitled Administrative Financial Management, Bradley revealed that financial management is an aspect of business management to regulate company capital. Not only that, but financial management must also consider the selection of sources of wealth to achieve the goals.

3. Joseph L. Massie.

A different definition is explained by Joseph L. Massie, author of The Essentials of Management. Massie said that financial management is a business activity responsible for obtaining and using company funds to achieve effective operations.

The Purpose of Financial Management in Business

There are five main objectives of the company when implementing financial management, namely:

1. Maintain smooth cash flow.

The first objective is to ensure that the company has a healthy cash flow. The application of financial management can monitor the amount of income or expenditure. By monitoring, companies can anticipate so that cash flow is not harmful.

2. Improve the efficiency of using company finances.

The implementation of financial management, which is closely related to efforts to improve the efficiency of the use of company funds. You can carry out supervision and eliminate costs that are deemed ineffective and replace them with profitable activities.

3. Increase profits.

Financial management can also be used when you want to achieve goals to achieve higher profits. You can get this condition by doing careful financial planning.

4. Capital Structure Planning.

The use of financial management can also be used to plan the company’s capital structure. Here, the company can adjust the capital composition to balance between equity and debt.

5. Ensure investment safety.

The final objective is an effort to assess the level of security in investment activities. That way, the company’s investment can provide positive returns.

Financial Management Functions

Apart from having the stated objectives, there are five functions in the implementation of financial management by the Company, namely:

1. Capital adequacy estimate.

The existence of financial management allows financial managers to predict the Company’s capital adequacy. Appraising the estimate accordingly can increase the Company’s revenue capacity.

2. Assess the capital composition.

When the Company has estimated, 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.

3. Choose the right funding source option.

The next function is the decision to choose the source of company funding. Apart from the equity capital owned by the Company, there are several choices of sources of funding from third parties that the right funding source can obtain. External source options include the issuance of shares, bank or financial institution loans, and debt securities.

4. Cash Management.

Financial management also has an active role in the Company’s cash management efforts. Cash is essential because that can use it to pay salaries, monthly bills, liabilities, spending on raw materials, and so on.

5. Financial Control.

The last function of financial management is to control the Company’s finances. Many ways can be done as a control effort, such as financial forecasting, cost and profit control, ratio analysis, etc.

To help streamline corporate financial management, there are many tools that you can use. SAP Business One is one of them, which provides the best solution to monitor sales, profit and inventory figures.

What is SAP Business One?