Financial management

ENTREPRENEURSHIP DEVELOPMENT FOR RURAL FAMILIES 4(1+3)
Lesson 14 : Management of Financial Resources

Financial management

Financial Management is the process of managing the financial resources, including accounting and financial reporting, budgeting, collecting accounts receivable, risk management, and insurance for a business.

The financial management system for a small business includes both how you are financing it as well as how you manage the money in the business.

Financial Management is concerned with optimal procurement as well as usage of finance.

  • For optimal procurement, different available sources of finance are identified and compared in terms of their costs and associated risks. Similarly, the finance so procured needs to be invested in a manner that the returns from the investment exceed the cost at which procurement has taken place.
  • Financial Management aims at reducing the cost of funds procured, keeping the risk under control and achieving effective deployment of such funds.
  • It also aims at ensuring availability of enough funds whenever required as well as avoiding idle finance.

Financial management involves all functions related to financial planning, rising of finance and efficient utilization of finance in a business.

  • Raising of funds
    • Funds are raised considering the financial requirements of various activities of the business. Finance can be raised through Share capital and Loan.
  • Allocation and Utilization of finance
    • Finance is allocated among the departments considering their requirements and in terms of cost benefit analysis. The relative significance of the activities that consume finance also deserves consideration.
  • Dividend decision
    • The profits earned through effective utilization of finance are either distributed to the owners of the business or is reinvested in the business. The ratio at which this is to be done is recommended by the finance department.
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Last modified: Saturday, 7 January 2012, 8:53 AM