Finance Essay: Importance of Financial Management
Prepare a detailed and well-researched finance essay discussing the importance of finance management within an organization.
Introduction to Finance Essay
Organizational management is a significant part of organizational development. This leads the entire organization to walk on the path that tends to ensure the achievement of the goals of the organization at a lower cost (De Roover, 2017). Several factors are needed to manage the organization among which finance is important for organization. Management of finance is an efficient and important part of the organizational development (Lewin et al., 2016). Financial management systems help to improve the areas that will help to bring the highest level of transparency and accountability in the organization. The aim of the essay is to discuss the importance of management of finance in an organization. Hence to achieve the aim of the essay, a clear description of financial management has been addressed. Apart from that, significance of management of finance and the need of the manager to balance the company have been elaborately discussed. And lastly, the source of finance has also been discussed.
Define financial management
The term financial management is described as planning, organizing, directing, and controlling of the activity related to finance. This includes activities that comprise of the procurement and utilization of the funds of the endeavor. The financial management approaches help in applying the general management principles on the financial resources of the endeavor (Bulturbayevich et al., 2020). The purpose of the financial management considered the estimations of capital requirement, establishment of composition of capital, choice of source of funds, disposal of surplus, investment of capital and controls on financial factors (Prihartono & Asandimitra. 2018).
Importance of financial management
It is quite clear that financial management is important for the development of the organization and to reduce the economic risk of the organization. It is necessary to be aware of the source of money and the expenditure of the organization. The financial management at the primary stage of the organizational development is necessary as it helps to provides guidelines for financial planning. It supports the organization and makes it aware of the collection of funds from the different sources and increase the scope to invest in several funds. It supports the organization to reduce the delay of the production, and also reduce the unnecessary financial costing (Boateng, Akamavi & Ndoro, 2016). The financial management ensures the appropriate use of the funds and encourages the organization to make a decision that will support the financial factors. Apart from that, the increase in wealth and managing the profit with minimum costing helps a lot in the development of the organization. It has controlled the financial factors of the business, and has informed the organization about the deprivation and elevation through financial reporting. This allows the organization to be stable and well balanced between the input and output of the organization. Along with that, it provides the scopes that will encourage the business (Buil, Catalán & Martínez, 2016).
Role of the financial manager in a company
It is commonly found that without the financial manager, it is not possible to manage the financial factors. The primary function of the manager handling finance in a company is to estimate the amount of capital that is required to enhance the required amount of the areas in order to increase profitability and productivity of the organization (Oelze et al., 2016). The financial managers help in ensuring the structure of the capital and assess and evaluate the accurate sources of the funds. Apart from that, they work to ensure whether the attainment of funds is working in favor of the organization.
Sources of finance
Multiple sources of finance are available for business purposes; the crisis is the correct way of investing. The most common supportive hands in the business sector to provide finance are bank loans. This is one of the traditional forms of business finance and ensures several things before providing the loan (Amaliyah, Apriyanto & Sihwahjoeni, 2019). Secondly, business credit cards are also a convenient way of source of finance. This allows having quick funding and purchasing of stock, and different types of equipment. Thirdly, merchant cash advances which are a short-term funding solution are designed to have card payments. This also includes invoice factoring, a process that includes selling open invoices to a factoring company. Crowd funding is also one of the popular ways for businesses to enhance the business in a new direction (Squires et al., 2016).
There are several options that businesses have to get the funds to start or run the business. Some of the options are small-term while some are long-term finance options.
Short term options
Working capital loans: The working loans help to provide financial options for daily operations. Small business owners can maintain payrolls and equipment management at tough times.
Unsecured business loans: The unsecured loans do not require having collateral. Small businesses should explore these types of loans; as it is much faster than the secured loans (Pauw, 2017).
Equipment financing: This is a type of loan that helps to provide support to purchase or lease new equipment that is needed by the company (Gabriel & Kirkwood, 2016).
Banking loans: They are the long-term options for the company to start a business. The entrepreneurs can have funds directly from the bank by showing the business plan and the valuation in detail.
Government startup programs: The capitals that are being provided by the government for establishing the program can be of a good long term option. In general, these have a very low-interest rate; hence it is helpful (Gherhes et al., 2016).
It is clear from the above discussion that, financial management is important for the development of the organization. It helps in multiple ways and provides information that benefits the organization's development. Financial management can be best done by the help of financial manages and hence, the management needs to have a financial manager to build the organization. The above-mentioned sources of finance are the most commonly used mediums and are believed to be extremely helpful for the people. The options for the short term or long term both work equally to enhance the organization’s development. However, it completely depends on the management of the company that whether they want a long term funding source or short term based on the nature of the organization.
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