Explain the basics of Financial Management

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Financial management is the term used for efficient management of the funds in order to meet the aims of an organization. It is the special function which is directly related to the top management. The importance of this term is observed in capacity of staff in overall organization. This term is explained differently by the different financial management experts in this field. The term basically deals with the financial strategy of a particular organization while personal financial life management deals with the management strategy of an individual. It consists of steps how to increase the capital and how to budget a capital. It deals not only with budgeting that is long term but it also deals with short term budgeting like that of current liabilities. It is connected with dividend policies of the share holder. Planning is the part of financial management. Funds flow is moved according to some plan according to the financial management and also it deals with planning, controlling and procuring of financial resources of any firm. Financial management is operational activity that is held responsible for getting and using the fund flow effectively that are necessary for effective operational work in any organization.

It deals with disbursing of the funds by private businesses that operate in non financial areas of the organization. It is an area if decision making related to finance increasing the goal achieving power of an individual. It is an area of business management related to the use of funds and selecting the sources that enhance the move in the direction of its goal. It is essential to take right decision for maximizing the profit and addition of value in the entity. It should be kept in mind that while managing the finance the returns should be greater than amount that is invested in an organization. The main objective of financial management is to maximize the profit. It happens when the marginal cost is equal to the marginal revenue. It is the maximization of the wealth of the share holders and is considered as advanced goal as compared to the profit maximization. Any company can survive if the manager managing the finance takes all the finance related decision smartly. Any wrong decision taken in this regard can lead to bankruptcy. Proper cash flow needs to e maintained and it is also main objective of financial management. It is important for paying daily expenses like raw material, wages, electricity bills, rents etc. A company can survive if cash flow is good. Capital cost once minimized can cause more profit.


In both the short and long run, one can improve the efficiency of funding. A business can get huge returns if investment plan made is good. It is necessary to good estimation on the costs for the enterprises that are new in the market. The balance sheet has both current and fixed assets. Fixed assets are the one that cannot be changed in to the cash easily like equipment, plant, property etc. A current asset is related to the cash or cash equivalent or anything that can be changed to cash in a period of one year. It is not an easy job for new beginners to estimate current assets due to the changes in receivables and payables. The financial planners are required to prepare plans for people professionally. The financial plans often include cash flow management, financial risk management, retirement planning, estate planning, investment planning, tax planning and business succession planning which are related to the business owners. The financial planning should cover all the aspects of financial need of an individual. It should achieve the goals of the client as required by him. For doing the finance management we also have association specially made for these purposes. FPA or Financial Planning Association is a leadership and advocacy organization that is set up in Denver, Colorado. It works with the leaders of academy and also posses regulatory and legislative bodies. It was created in 2000 through the institute of Certified Financial Planners (ICFP). Its main aim is to increase the value of financial planning. Financial Management for IT services is a service strategy part of ITIL practice. Its goal is to give accurate and cost friendly stewardship of IT assets. It is used to control, plan and recover the expenditure costs that are neglected in IT services. The main aim of finance management for IT is to regulate the cost of the IT services while keeping in minds the risk factors and quality of the account.


The analysis maintains the balance between the cost and quality and also between risks to form intelligent strategies. It contains the three sub process and they are budgeting, IT accounting and charging. The budgeting enables an organization to make plans for future IT expenses. It brings down the risk level of extra spending and make sure that the revenues are capable of covering the predicted spend. Budgeting gives provision to compare the costs with previously predicted costs so that it may become reliable enough to maintain the proper financial balance. The fund flow needs to be maintained so that the returns are always greater than the inputs of an organization. The aspects of finance management include steps like sales and marketing, production budget, administrative budget and cost of investment budget. IT accounting relates with the money spent on IT services. It also leads to provide financial transparency to help management in taking decision for the financial problems. There are several costs that should be kept in mind to control accounting. These include capital costs, operational costs, direct costs, indirect costs, fixed costs and variable costs. The charging provides the capability to assign the costs of an IT service on fair bases to the users of that service. It is considered as the first step towards IT organization. It is used to inspire users to move forward in a proper direction with a strategy. It is the most complex process out of all three sub processes. This is the policy that is needed to be simple, realistic and fair in all aspects.

This article has been written by KJ Singh a MBA Graduate from a prestigious Business School In India
Article Published:January 1, 2018
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