One of the most crucial roles of business owners and managers is financial management. They must think about the impact of their management actions on profitability, cash flow, and the company's financial situation. Every part of a business has an influence on the company's financial success, and the owner must assess and regulate these operations.
A Business's Life Cycle
During the starting phase, most businesses lose money and have negative cash flow. During this period, financial management is critical. Even if there is more money going out than coming in during the early months of a firm, managers must ensure that they have adequate cash on hand to pay staff and suppliers.
As a company develops and matures, it will require more cash to fund its expansion. It is critical to plan and prepare for these financial requirements. Financial managers must decide whether to support expansion internally or borrow money from outside lenders.
Financial Management in the Normal Course of Business
A company's usual operations include providing a product or service, making a sale to a client, collecting the money, and repeating the process. Financial management is effectively transferring funds through this cycle. This entails keeping track of raw material and finished goods inventory turnover ratios, selling to clients and collecting receivables on schedule, and then beginning again with new raw materials.
Meanwhile, the company needs to pay its expenses, suppliers, and workers. Even while economies have a long history of rising, they do face dramatic dips from time to time. Businesses must plan ahead of time to have adequate liquidity to weather these economic downturns, or they risk having to close their doors due to a lack of funds.
Business Operational Reporting
Every company is accountable for reporting on its activities. Shareholders expect to get frequent updates on the performance and safety of their assets. Reports are required by state and municipal governments in order to collect sales tax. Other sorts of reports, such as those containing key performance indicators that assess the actions of various areas of a company, are required by business managers. A complete financial management system may also generate the numerous sorts of reports that each of these businesses needs.
Tax Returns and Payments
The government is always on the lookout for methods to collect taxes. Financial management must make arrangements to pay taxes on time. Every small business owner or manager has to know how to manage money. Every action a business owner takes has a financial impact on the organization, and he must make these decisions in the context of the entire business.
