#Financial management refers to the planning, organising, directing and controlling of financial activities such as procurement and utilisation of funds for an establishment. It means applying general management principles to the financial resources of a #business. Its objectives include:

1. To ensure regular and adequate supply of funds to the enterprise.

2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.

3. To ensure optimum funds utilisation. Once they are procured, they should be utilised in maximum possible way at least cost.

4. To ensure safety on investment i.e funds should be invested in safe ventures so that adequate rate of return can be achieved.

5. To plan a sound capital structure- There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.

Financial management of your business encompasses more than keeping an accurate set of books and balancing your business checking account. You must manage your finances so you don’t overspend and so you remain prepared for all expenditures, as well as profit distributions. Your financial management responsibilities affect all aspects of your business. A company that sells well but has poor financial management can fail. In other words, if you are not good at financial management, you’re building a house of cards. Many businesses do well for a year or two before they implode due to a meltdown in their financial structure. Since they didn’t understand the money language, they lost track of their cash flow.

Do you have to be good at managing money to make money? No, making money is completely different from keeping money. You need to know what’s going on as a business owner despite hiring accountants and book-keepers for your account details. The technical term for understanding the language of money is financial management.

How To Manage Your Cash Inflow And Outflow

One of the major reasons businesses fail is poor cash flow management, which can be prevented. You have to understand the difference between cash and cash flow.

Cash is the money in the bank or cash register, which should not be confused with inventory or property, they can be converted into cash but they can’t directly pay for your company rents or your employees. Cash is also different from profit. Profit is how much you have left after paying for your business expenses.

Cashflow on the other hand, is the flow of cash coming into your business and leaving it. Inflow is money you receive from your customers while outflow is the money you give to pay employees, suppliers and creditors. The purpose of the money game is to have a positive cashflow rather than negative cashflow. Positive cashflow is when money coming in is greater than money going out and negative cashflow is the opposite, when money going out is more than the one coming in. It is possible to have numerous customers and still have negative cashflow especially when your big customers only pay at the end of the month.

How To Track Your Money? Financial managers employ the use of income statement, balance statement and cashflow statement to help track money. Store owners however use cash registers, price tags and display cases.

Balance Sheet

It shows the financial position of your business, but does not evaluate its performance. Balance sheet gives details about how much money and assets you have to run your business. It lists these resources but doesn’t judge them.

Balance sheet covers your assets and liabilities and breaks them down into useful sub-categories. Assets are divided into current assets and non-current assets. Liabilities are broken down into current liabilities and long-term debts.

Income Statement

This will give you a good idea of how your business is doing over a certain period of time. This includes revenues you’ve earned, expenses you’ve incurred, and whether you made money or lost it.

Cashflow Statement

This tells you how your establishment performed over a certain period of time, in what is similar to that of income statement. It discusses the inflow and outflow of cash.

5 Good Reasons to Understand Financial Management for your Business

1. You are always be able to be proactive in your business.

2. You can borrow money when necessary.

3. You can grow your business in the future by giving investors the information they need to know.

4. You can ensure that expenses don’t exceed revenues.

5. You can make key financial decisions on how to run your business better.

Tags:  business Business Development Financial management Manage Money start-up planning Trading