The Role of Financial Management in Business

The Role of Financial Management in Business
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The Role of Financial Management in Business
Introduction
The term financial management refers to the manner in which a business manages its funds to enable it achieve its objectives. Financial management has a close association with the top management of an organization. I intend to learn the theoretical concepts that organizations must include in their financial management systems. I also intend to learn the roles that financial management plays in businesses. The existing literature shows that it is important for the management to ensure that the best practices of financial management exist in their organizations (Johnson, 2014). They must align the best practices of financial management with the organizational goals and objectives (Johnson, 2014). There are different theoretical concepts that the management of a business must include in its financial management. Gartenstein (2014) discusses the four important concepts that an organization must include in its financial management. The concepts include book-keeping, cash-flow, financing, and budgeting. Johnson (2014) analyzes the functions of financial management in a business. Financial management enables the business to manage its capital expenditures and operating. The business also reduces its expenditures and plans for its taxes through a sound system of financial management (Johnson, 2014).
The theoretical concepts of financial management
It is important for organizations to understand the theoretical concepts that they should apply in their financial management systems. Book-keeping is one the practices that organizations must apply in their financial management systems. Gartenstein (2014) explains that book-keeping entails the business tracking its daily financial activities. The business makes periodical reports that reflect its financial position. The financial reports include the balance sheet and profit and loss statements (Gartenstein, 2014).
Financing is another concept hat the managers must understand. They should also incorporate the aspect in their financial management systems. Financing includes the business activities that affect the capital. Business loans and credit cards fall under the aspect of financing. The concept of cash flow entails how the business meets its day-to-day operations in a sustainable manner. Budgeting involves the organization planning how it will spend its income. The organization, for example, must decide on the most appropriate time to purchase an asset (Gartenstein, 2014).
The role of financial management in the business
Financial management assists the organization in various ways that enable it to achieve its goals. The basic importance of financial management is that it enables the organization to control its spending. It protects the organization from over-spending on certain projects. The organization also remains prepared to meet emerging expenditures (Johnson, 2014). Capital expenditure is important in an organization’s spending. It is important for organizations to spend their capital on the right investment. Financial management helps organizations to analyze and understand their investments. The organizations can make good decisions concerning the investments that not only have the biggest returns but are also safe and have low overheads. The business understands the risks surrounding the investments before it invests its capital in the opportunities (Johnson, 2014).
Financial management also gives the organization a sound cash-flow. The organization manages its cash-flow in such a way that it can meet its recurrent expenditures like rent, repairs, salaries, etc. Johnson (2014), explains that the role of regulating operating cash entails the financial manager looking ahead and identifying the time when the accounts receivable are due. The manager compares the information with the due dates for the business’s bills. One of the ways the manager can use to manage the cash flows effectively is by shortening the period within which the customers should pay their debts. The manager can also re-negotiate the dates for the vendors. Johnson points out that if the manager fails to manage the business’s cash-flow effectively, he may fail to meet the daily expenses of the business (2014).
The organization can also lower its expenses through its financial management. One of the responsibilities of the financial manager is to minimize the expenses of the business (Johnson, 2014). The example of the strategy that the financial manager can use to minimize the expenses is reducing the number of employees. The manager can also negotiate for low prices from the vendors. Alternatively, the manager can make his purchases in bulk and cut down the amount of energy that the business consumes. Expense reduction should target the expenditures that have minimal returns on the business. The manager must understand that if he fails to control the expenses of his business, the expenses shall rise. The company shall have to increase the sales in a dramatic manner so that it can meet the additional expenses (Johnson, 2014).
Financial management is also important as a tool for planning for the business’s taxation. Financial management ensures that the business keeps its expenses at the minimum levels. The budget of a business always includes the tax projections. Financial management ensures that the business reserves adequate money that it can use to meet its tax plans (Johnson, 2014). Through budgeting, a business can estimate the amount of taxation that it will pay in the coming years. The business can determine that in the current year, it will not spend a lot of its income on tax. However, in the following year, the government can change its tax policy, compelling the business to pay more taxes than the current year’s amount. In such a scenario, the business plans for the year with a lot of tax payment by saving enough money to use in paying the tax increment. The business achieves such a planning through its sound financial management, and the plan protects the business from closure for failing to meet the legal requirement of paying taxes (Johnson, 2014).
Application of the Financial Management Concepts
I intend to apply the knowledge of financial management in my future carrier as the financial manager of a business. I will apply the knowledge in managing my personal businesses or companies. As a financial manager, I will include the best practices of financial management in my day-to-day activities. Such practices are book-keeping, financing, cash-flows, and budgeting. I will prepare the documents to keep the records of the company’s finances. Budgets shall help me in the projection of the company’s income and expenses. The financial management practices, especially book-keeping, shall help me to maintain a sound flow of cash so that I can meet the regular expenses within the business. Such interventions will ensure the continuity of the business.
Conclusion
Financial management is important to the success of a business. A sound system of financial management enables the business organization to maintain a good flow of its cash. The organization also controls its spending through budgeting. Organizations with good financial management are prepared to meet extra expenditures. The organizations can also plan for their taxes and lower their expenses.

References
Gartenstein, D. (2014). “Why is Financial Management so Important in Business?” AZ Central:
A Gannet Company. Retrieved on October 5, 2014 from http://yourbusiness.azcentral.com/financial-management-important-business-4406.html
Johnson, K. (2014). “Why is Financial Management so Important in Business?”
Smallbusinesschron.com. Retrieved on October 5, 2014 from http://smallbusiness.chron.com/financial-management-important-business-57073.html