What is Financial Management?

Financial management is a set of actions and administrative procedures that plan, analyze and control the financial activities of a company.

It refers to everything from investments, fixed and variable expenses, profits, loans, financing, and the company’s equity value.

These actions are fundamental for an organization to achieve good results, as they allow setting goals, defining deadlines and analyzing whether the results are in line with the organization’s plan. In it, you will understand the basic principles of managing this very important department within the organization and understand the challenges in this field, accounting concepts and much more.

Now let’s learn more about financial management and its importance.

The importance of good financial management

These are the 4 basic questions of good financial management and they clearly explain why it is important. If you, as a finance manager, don’t know the answers to these questions, you’re doing something wrong!

Only through the analysis of the company’s financial indicators can we understand the direction of the company’s development, either to continue on this path or to take measures to improve its performance.

The second important issue is to understand whether the company is profitable or loss-making. This may seem obvious, but most organizations conclude from the cash flow that this is the remainder. However, this has nothing to do with profit and loss.

Companies usually have cash left over, but operating losses, just as they may not have cash, operations are making a profit. is following as desired.

Another important issue is to understand what actions can be taken to achieve the desired improvements. Once the indicators are understood and if the company really has a good profitability or not, it is necessary to outline actions to reach the desired performance level.

Finally, doing financial management is important to understand what the company has to receive, what it has to pay and how the balance of financial resources is. In this way, you will be able to identify whether you can honor short-term debts with what you have to receive, understanding the balance between the organization’s assets and liabilities.

Functions of financial management

• Financial planning: highlight organizational growth needs, identify future issues and challenges, select profitable assets befitting the business, and establish a minimum return on assets.
• Financial control or control: monitor and evaluate the company’s financial performance, analyze the deviation of financial indicators, compare forecasts with actuals, determine basic corrective measures, implement corrective measures and verify effectiveness, and verify the issuance of invoices .
• Asset management: Establish the best asset risk and return structure (risk management), monitor the gap between inflow and outflow (cash flow, working capital management), and do a good job in investment management.
• Liabilities Management: manage the capital structure (financing) of the organization in order to guarantee a more effective capital structure in terms of stability, financial risk and cost reduction.

By understanding this situation, you will realize the importance of good management now, but you will also understand how these positive attitudes will affect the company in the future.

Many managers think only of the present and hope that quick results can be presented to their superiors, committing a crime. Don’t get me wrong, quick results are good and must be achieved, but you have to understand that some actions will only pay off over time, if they work well they can change the financial situation of the organization!

Financial management can be used in different businesses such as stores, it is of great importance for you to understand so that you can invest later.

I hope you have understood that financial management is basically the control of your company so let’s understand the concept.