Careful management of financial resources is crucial for any organization to succeed in today’s competitive world. Financial management techniques help in maximizing profits and getting better investment returns. Managing fixed and variable financials benefits the organization to perform its operations. The financial management techniques help identify the real-time financial position of the company and insights for future compliances.
Keeping track of all financial statements of every department is necessary for organizational decision-making. Moreover, managing financials in all forms like short & long-term investments, liquidity of funds, operational revenue, profitability, and all expenses is significant for long-term gains.
Each organization periodically monitors its income and expenses and plans its future accordingly. Similarly, financial management techniques help sustain internal stakeholders and assure external stakeholders of good returns. These techniques enable effective management of fixed assets, revenue operations, and analyzing business compliance towards lenders/creditors.
Organizations must focus on a realistic assessment of incoming and outgoing financial resources for better planning.
- Realistic Budgeting
Budgeting means meeting all the operational costs such as the cost of rent, salaries, taxes, business operations, and raw materials, and putting some amount aside for emergencies. Organizations must focus on a realistic assessment of incoming and outgoing financial resources for better planning.
There are two types of budgeting, static and flexible. Static budgeting remains the same as designed before the execution of business expenditures. On the other hand, flexible budgeting changes as the situation arises. Managing the funds using realistic budgeting techniques helps organizations sustain the market.
- Periodic Auditing
Timely auditing helps business entities to check over their financial incomes & expenditures. Auditing helps keep a check & balance where businesses can identify their profit/loss.
Bookkeeping and accounting of a particular year are examined by the auditing authorities/officials. The organization’s audit reports are used for future planning and published on their websites to inform the external stakeholders.
- Risk management
Financial management comes with unforeseen risks. It is always better for organizations to be prepared/insured for those risks. Prior planning for risk mitigation helps organizations to outperform competitors. The risk management technique allows business entities to assess the market, liquidity, credit, and operational risks.
Financial risk management enables organizations to get future insights into possible market risks. Liquidity risk helps track current cash flow, estimate future cash flows, and the need for liquid capital. Similarly, credit risk includes borrowing, and time durations to return the borrowed money. In addition, there are operational risks like cyber threats and fraud.
- Working capital management
The working capital management technique includes monitoring current assets, current liabilities, inventory turnover ratio, liquid cash flow, and working capital ratio. Managing these resources helps in the sustainable functioning of business operations.
Basic working capital management is essential to keep liquid cash available for day-to-day business operations and comply with short-term liabilities. This management technique helps sustain the business cycle.
- Raised funds management
The raised funds management technique manages funds sourced from shareholders or borrowed from creditors. Business entities need the best fund management techniques to assure good returns to their lenders before borrowing from them. On the other hand, if the business has adequate reserve funds in fixed and liquid assets, it requires appropriate management of both assets.
For cost-effectiveness, a proper calculation of required funds is necessary before borrowing money from shareholders/borrowers. Organizations can take care of future expenses and meet them by raising funds. This technique ensures successful fundraising and better returns for investors.
In a nutshell
Every organizational functioning includes a set of standard operating procedures where financial management plays a crucial role. The above-mentioned techniques are highlighting their significance in various dimensions. These financial techniques help manage budgeting, auditing, risk management, capital management, and fund management in a better way, to bring fruitful outcomes.