for the Success of a Business Enterprise
In this age of globalization and fierce competitions, the importance of financial management in operating a business establishment has increased many folds. The role of financial management has evolved beyond managing the day-to-day business to encompass strategic planning. A growing, successful business needs to recognize the importance of financial management and its contribution to achieving business goals (“Financial management and business success – a guide for entrepreneurs” 3). It embraces diverse functions from effective administration and compliance, managing cash flow, and tracking and measuring performances to developing plans that help senior management to identify, and assess new opportunities.
Financial management functions relate to three major decision-making processes of a business organization. They are the investment decision, the financing decision, and the dividend decision. All three are correlated and for maximization of the shareholders’ worth, a financial manager has to find an optimal mix (Van Horne 9). Some of the important management activities of finance management are financial planning, acquisition and proper use of funds, increase profitability and value of the firm. Financial planning helps management to identify, assess and capitalize on new opportunities. Under a plan, different options are financially evaluated. It allows to prepare and create an action plan that minimizes costly mistakes. It is also an important tool to convince financiers and others to support the venture.
Acquisition of finance is critical for smooth operation of the business and forms a major part of financial management. Based on period, the financial requirement may be long-term and short-term. Short-term capital requirements are generally met from loans and advances from commercial banks. Primary sources for long-term finance are equity share capital, preference share capital, debenture, and long-term loans. Operational efficiency of the business entity can be improved by judicious use and allocation of funds. Profitability of the organization can be improved by implementing financial control devices like budgetary control, cost volume profit analysis, and ratio analysis
In brief, it can be stated that the decisions of the financial management profoundly affects the present and future profitability and viability of the business organization.
Work Cited
“Financial management and business success – a guide for entrepreneurs.” The Association of Chartered Certified Accountants, http://www.accaglobal.com, May 2016. Web. 20 Jan.2017.
Van Horne, J. C. “Financial Management and Policy, 2nd ed”. Prentice-Hall, inc., Englewood Cliffs, N.J. Print.
