Why Finance Management Matters As Much As Business Management
More and more companies are open to implementing financial management into their core business function. The main reason for that is believed to be the uncertainties the pandemic, and current market condition has brought with it. However, rather than pondering over the reasons, we look at the scope of financial management in the current business environment. We also emphasize on its importance and significance to business organizations across different industries.
Future Scope Of Financial Management In 2022
The number of businesses that are becoming inclusive of financial management is increasing by the day. Keeping that in mind, the scope of financial management looks bright in 2022 and the forthcoming decade. Later in the article, we will explore the scope of financial management, but before that, let’s understand the basics of financial management.
Introduction To Financial Management
Financial management is a strategic and tactical business function that involves planning, organizing, directing, and controlling a company’s financial undertaking and transactions. Experts define it as the process that helps judicious use of company funds. Here are some of the objectives of financial management, offering a clear understanding of the concept:
- Maintaining a positive cash flow statement
- Ensuring that the shareholders get timely dividends
- Proper utilization of resources
- Creating various investment opportunities for the business
Furthermore, many definitions of financial management highlight the different functions of the business process, like obtaining resources, carrying out business operations, paying the supplier, budgeting, portfolio management, judicious use of the company’s revenue, etc. Therefore, an introduction to financial management is incomplete without exploring the scope of the business process. Thus, in the succeeding part of the article, we will look at the scope of financial management in the current business environment.
Understanding The Scope Of Financial Management
In order to understand the scope of financial management, it is imperative to know about the factors that yield the power to change it. Below are the factors that influence the scope of financial management.
1. Investment decisions
Making the right investment choices is one of the most important responsibilities of a finance manager. The increasing need to make sound and profitable investment decisions have increased a company’s future scope of financial management. These investment decisions help in times of adversity. Moreover, it helps while setting capital budgeting and developing company budgets.
There are two types of investments, namely long-term and short-term. Long-term investment decisions mean that companies will be investing in fixed assets for a long period, which cannot be reversed soon.
Meanwhile, short-term investment decisions mean the company’s funds will be invested in current assets. It is used in decisions like inventory planning, bank deposits, and other short-term investments. Interestingly short-term investment decisions do not affect the company’s financial performance.
2. Financing decisions
Finance management is the proper utilization of a company’s funds. It is a critical decision that helps decide the future scope of financial management in a business organization. Similarly, financial managers play a vital role in this business decision- from finding investors for continuous funding to designing the capital structure, all the roles and responsibilities pertaining to the financial planning and execution are done by them.
There are two types of financing decisions that a manager makes. They are as follows:
- Financial planning decisions: In this type of financial decision, managers estimate the organization’s financial needs and work accordingly to facilitate capital needs.
- Capital structure decisions: Identifying the different sources of funds is the main aim of the financial manager in this type of financial decision.
3. Dividend decisions
Organizations that opt for Initial Public Offer (IPO) need to make significant dividend-related decisions. Finance managers play a vital role in this process; they decide the profit distribution system of the company. Also, make sure that the shareholders get their dividends on time. Moreover, careful financial planning and judicious use of funds can help in the appropriate distribution of dividends.
4. Liquidity decisions
Liquidity is referred to as the availability of assets that can be easily converted into cash. Finance managers consciously make investment decisions to ensure that the company’s assets are liquid and profitable in any market condition. The increasing need for liquidity decisions has increased the scope of financial management in a company.
What Is The Importance Of Financial Management?
Finance is the lifeline of a business organization. Here is why financial management is an important business function:
- Acquiring funds: Finance managers perform financial management to attract funds for business operations. The majority of their work involves looking for different sources of funds at minimum cost.
- Judicious usage of funds: In order to increase business efficiency, finance managers must use funds judiciously.
- Making a financial decision: Finance management helps in making sound financial decisions. It indirectly increases the profit and sales figures of the organization.
- Increases profitability: Finance management is a business function that helps bring a standardized system into the finance department for planning, monitoring, accessing, and recording financial transactions. Vicariously it leads to an increased percentage of profit.
- Making the right financial investments: Financial management uses business funds judiciously. It suggests the right financial investment opportunities for the company that will reap benefits in future. Finance managers and their expertise also have a hand in making the right financial investments.
The current business milieu that is riddled with challenges and uncertainties has emphasized the importance of a standardized procedure for managing the finances of a business organization. Financial management does that and more for a company. Therefore, the significance of financial management is increasing by the day.
Suppose you plan to build a career in finance management, then it is imperative to take a professional learning programmes. Generally, employers look for candidates with an advanced degree in finance management or a similar field. However, the advent of the internet has opened up a new avenue in the learning sector- online certification courses.
Emeritus India is a pioneer in the field of online education. We have some of the best finance certification courses offered in association with renowned Indian and international universities. And enrolling in these courses will help you skyrocket your career to new heights.