Financial management is critical for both businesses and individuals although many people have little sense of what in involves or how important it actually is. Read on to learn more about how financial management works on several levels.
Defining the Term
You might be wondering, “What is financial management anyway?” Basically, financial management is all about planning, budgeting, coordinating, overseeing and regulating financial activities either in a business or in the everyday life of an individual or family. Financial management is both theoretical and practical. It involves understanding the best practices and most efficient means of dealing with money and then applying them on a day-to-day basis.
Financial Management in Business
In the business world, financial management involves some very specific tasks. Financial managers make sure that a company has enough operating funds and that they are used in the most efficient way possible.
A company’s financial manager will first budget, estimating the funds necessary to run the business. The manager will examine all sources of income as well as the costs associated with running the company and then try to balance the two columns, noting where there are profits and deficits. The manager will also explore possible sources to increase funding, including investments, issues of stocks or bonds to shareholders and loans.
Next, the manager will strive to allocate currents funds and anticipated funds in the fairest possible way across departments, looking at the various needs of each and considering everything from salaries to production costs to utilitiesto building maintenance.
Finally, a financial manager also needs to establish rules and regulations to govern a company’s financial practices. These might involve procedures to request funds, tasks for particular employees and provisions for regular audits.
Financial Management in Daily Life
While financial management in a business setting is complex and usually performed by someone who is specially trained, you can and should practice at least some aspects of financial management in your daily life. You might, for instance, set up a monthly budget for your family. Make lists of all your sources of income and expenses, and see if you are in the black or in the red. If the latter is true, then you will have to cut some of your expenses, as painful as that might be, or you will have to look for new sources of income.
You should also carefully manage any investments or saving accounts you might have, paying attention to how much you are making and looking for options that may allow you to increase your profits.
Finally, you should establish a set of rules for yourself so that you can improve your financial situation. These might be as simple as thinking twice before you buy or doing more research before making major purchases or even committing to putting a particular amount into savings every week or every month.
You don’t have to be a fintech genius like Kirk Chewning to begin to practice at least some level of financial management in your life, and you might discover that your financial situation will improve if you do.
Financial management, then, is critical to both businesses and individuals, and knowing more about it can help you better understand and practically use financial management skills.