The types and functions of financial management vary. Whatever your approach, financial management can help you control, organise and understand your finances to grow your business.
What is financial management?
Financial management is strategically managing your organisation's finances to help you reach your business goals. It can include analysing financial reports, budgeting, taking steps to minimise risk, managing cash flow and more.
What is the goal and purpose of financial management?
The primary goal and purpose of financial management is to ensure that your business stays solvent and can reach its longer-term goals.
Why is financial management important in business?
Financial management is important in business because it helps you to stay afloat and position yourself for growth. It does this by helping you to:
Improve decision-making
Understanding your current situation and forecasting financial health, risks and goals can help you make better business decisions.
Better control spending
With careful financial management, you control business spending to avoid unnecessary purchasing and get the best supplier deals. Getting your cost base down improves your overall profitability.
Put in place better financial strategies
You’ll have a clear handle on what money is coming in and out of your business and your debt obligations. This means you can put financial strategies and investments in place to increase revenue.
Types of financial management
Types of financial management include:
Working capital management
Working capital management covers your business’s everyday operations. It can help you ensure that you can cover operating expenses and debt repayments.
Capital structure
Capital structure is how you use debt and equity in your business to finance operations and expansion.
Capital budgeting
Capital budgeting is focused on how you use your capital to finance major projects and investments.
Functions of financial management
The functions of financial management include:
Estimation of capital required
You need to estimate how much your business needs to cover its operating expenses, grow and make a profit. A few ways to estimate this include cash flow forecasting and analysing historical data or industry trends.
Cash flow management
Cash flow management is focused on ensuring you have enough money to cover your debts, payroll, regular bills, materials and inventory.
Managing risk and compliance
Managing risk and compliance requirements helps your business operate safely and sustainably. This sets it up for long-term success.
Determining capital structure
Understand what financial resources and options are available to you. For example, to finance a major project or investment, you might invest your own money, sell company assets, look for outside investment or take out a business loan.
Utilisation of funds
Tracking how you spend your money and improving financial control can help you invest your financial resources in ways that keep your business sustainable, profitable and growing.
Financial management best practices
Financial management best practices include:
Monitoring and measuring financial performance
Monitoring and measuring financial performance with regular financial reporting keeps you on top of your assets, liabilities, equity, expenses, revenue and profitability. This gives you a detailed overview of your financial health.
Develop a financial plan
Developing a financial plan is a key aspect of efficient financial management. It lets you evaluate your current position and set achievable goals for your business.
Use accounting software
Accounting software automates reports, records income and outgoing expenses and gives you a snapshot of your financial health.
Tip: MYOB’s accounting software gives fast access to real-time, accurate reporting. Generate your income statement, balance sheet, cash flow statement and more with a few clicks. See how your business is tracking at a glance from your dashboard.
Example of financial management
Let’s say you run a lawn mowing business but want to branch out to include water blasting services. You’ll need to consider how you’ll finance this new service and how it’ll impact your revenues. You’ll need to consider the following:
What capital you need to buy tools and hire employees
Where you’ll get the funds
How much revenue you expect this new service to generate
What running costs you need to consider
Any risks to be aware of and how you could mitigate them
What you should do with the money you’ll make
Financial management FAQs
What is the most important role of financial management?
The most important role of financial management is to ensure you have enough money to pay your bills and work towards growth.
What are the differences between financial management and accounting?
Financial management is a strategic business process in which you manage money and focus on future goals. This differs from accounting, which focuses on recording and reporting your financial position.
How can accounting software improve your financial management?
Accounting software can work like a financial management system. For example, MYOB Business can automate processes like invoicing, managing taxes, paying employees and tracking performance.
You can access real-time reports and budgets in just a few clicks. MYOB automatically pulls receipts, invoices, bank transactions, past performance and more. This means there’s less chance of human error and you can trust your reports.
Make your money work with financial management
Financial management is a strategic plan for managing your business finances. It gives you the best chance of making money and keeping your business going.
There’s a lot involved, but it doesn’t need to be complicated. MYOB Business and MYOB AccountRight can also do a lot of the reporting legwork for you. This gives you a clear picture of your overall financial health. You’ll see what money’s coming in, what’s going out and what’s tied up in inventory or other assets. With the information you need always on hand, you’ll take the stress out of managing your finances. Try it today.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.