Financial Management Process

What is Financial Management?
Financial Management is simply the management of the finances of a business or an organisation in order to achieve financial objectives and goals.

Key objectives of financial management:
• Creation of wealth for businesses
• Generation of cash
• Provision of adequate returns on investments

key Elements in Financial Management Process:
(1) Financial Planning
Management must ensure that enough funding is available at the right time to meet the needs, objectives and goals of the business. In the short term, funding may be needed to invest in equipment and stocks, pay employees and fund sales made on credit. In the medium and long term, funding may be required for significant additions to the productive capacity of the business or to make acquisitions.

(2) Financial Control
Financial control is very key in management process. This is critically important in order to ensure the business is meeting its objectives. Financial control addresses questions such as:
• Are assets being used efficiently?
• Are the businesses assets secure?
• Do management act in the best interest of shareholders and in accordance with business rules?

(3) Financial Decision-making
The key aspects of financial decision-making relate to investment, financing and dividends:
• A key financing decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.
• Investments must be financed in some way – however there are always financing alternatives that can be considered. For example it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers.