22 February 2024
What is Financial Management? A Guide
If you want a healthy business, financial management is absolutely critical. What is it, and how can you make sure you’re using it to the best effect in your organisation?
Understanding the Fundamentals of Financial Management
Financial management is all about applying management principles to finance processes. It can include concepts like financial planning, organising and controlling data in a way that helps you unlock data-driven insights
Keeping a war chest of funds for the organisation is an example of financial management. So is keeping shareholders happy and creating investment opportunities. A financial management department will have a number of roles to account for, including:
- Investing any capital
- Using profits as effectively as possible
- Figuring out the minimum funds a company needs to acquire to stay afloat and thriving
- Maintaining financial control, using tools such as financial forecasting and risk management
Key Principles and Goals of Financial Management
There are a number of strategic financial management practices to consider that will help you hit the key principles and goals of the function. Any goals set should be specific and transparent, and with flexibility built in should any changes arrive.
The main objects of financial management are achieving stability and growth, which will help the business survive and thrive. However, it also revolves around profit maximisation, improving financial decision making, reducing risk, optimising processes and creating effective budgets.
The Importance and Benefits of Financial Management
There are a huge number of benefits to effective financial management. Ensuring compliance with regulations will keep your reputation clean, for example, as well as protecting you from any legal issues. Keeping that information transparent is great for the long-term wellbeing of the organisation, plus a reduction in fraud risk. This makes shareholders and other potential investors a lot more comfortable.
Similarly, when you have more controlled finances, it’s a lot easy to keep everything about the business in order. Without strong budgeting in place, organisations of any size can get into difficulty and struggle to stay afloat. Financial management helps prevent that.
Financial Management Strategies and Best Practices
There are some key best practices to consider if you want to ensure your financial management strategy is as effective as possible. These tips will ensure you have a strong idea of what financial management looks like to you, while also giving you the ability to adjust your plans on the fly.
Integrate with your business plan
Every organisation should have some form of business plan, and this should be considered in every function. This is especially true in financial management. If, for example, the business wants to focus on financial sustainability over pure profit, you’ll want to factor that into your priorities.
Get paid on time
You can have all the forecasting in the world, if a customer fails to pay you when they said they would that can leave you in a lot of trouble. Having an efficient (ideally digital) invoicing system will keep this process as smooth as possible.
Disaster planning (for example, avoiding relying entirely on the loyalty of one large customer) can also be helpful, as it will give you resilience against sudden changes.
Face tax deadlines head on
Taxes are an inevitability, and failing to meet them will leave you liable for huge fines and legal ramifications. It’s vital you meet your obligations in every country you operate in. A little forward planning will protect you and save you money.
Keep your records tidy
Following on from that, you need to be prepared for auditing, tax payments and generally keeping on top of how much money you have. Well-kept records will make this a lot simpler, ensuring you have a clear picture of exactly how much capital you have to work with.
Manage your overheads
Every organisation has some expenses set in stone, but there are others that can be stripped back and optimised. For example, how much do you spend on heating your office? Is that necessary? In fact, do you need to maintain office premises at all? What about equipment costs? Good financial management will evaluate these non-essential costs and create plans to account for them.
Be prepared for problems
No strategy survives contact with the enemy, and this is especially true in financial management. Sudden shifts in the economy can have huge knock-on effects to your carefully set out plans. It’s therefore really important that you have flexibility and ensure you’re agile enough to quickly pivot where needed.
Financial Management Tools for Every Organisation
Managing your financial data is made a lot easier with effective tools. That’s where Finance from MHR comes in.
We offer a range of financial planning, reporting and forecasting tools to smooth other a range of financial management processes, including Microsoft Dynamics and advanced CPM tools. Instead of relying on sluggish legacy systems, you’ll have a centralised source of useful information that can speed up a range of processes.
Best of all? This integrates seamlessly with our HR and payroll platforms to create a source of accurate real-time data, minimising the time spent hunting for the right data locked away in silos.
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