It is used to determine the real value of a company, determining the resources that are needed and how they should be managed efficiently. In this article you will discover the objective that it pursues and the process that must be followed for this purpose.
In today's business environment, financial management is one of the most demanding aspects, which must also be considered by entrepreneurs and micro-business owners, as it is crucial for them to strengthen their organizational capacity. By applying this activity, all areas of a business can be integrated to achieve each of its strategic objectives.
What is financial management?
It is a discipline used to determine the value of a company and how resources should be allocated. It considers how these resources are acquired, invested and managed . This means that corporate financial management analyzes the decisions and actions that are related to the financial means necessary to fulfill organizational tasks, considering how to achieve them, use them and control them.
In the book Financial Management (2010), the professor of financial economics and accounting, Andrés Pablo López , explains that “the financial management of the company is responsible for analyzing the needs for financial resources, their cost and the most convenient way to obtain them, as well as studying and deciding on the economic and financial viability of investments.” This involves the assessment and making of financial decisions, from the investment and financing.
In this way, the financial management of a company is responsible for analyzing how to obtain, conserve and use economic resources in an optimal manner, defining whether own or third-party resources are used . The different financial tactics used in management have the purpose of increasing the efficiency and profitability of the business.
Objective of financial management
Financial administration research expert Marcial Córdoba Padilla explains in his book Financial Management (2011) that this branch of business science is very important because its main objective is to control activities by obtaining new sources of financing, seeking operational effectiveness and efficiency. This goes hand in hand with ensuring the reliability of financial information to comply with applicable regulations and standards.
The economic and financial management of a company also seeks to cpa b2b list protect consumers, offer fair wages to workers, maintain ethical hiring practices and safe working conditions, as well as guarantee the equitable allocation of resources. In doing so, it also meets other associated objectives, as detailed below:
Increase shareholders' capital. This means offering greater returns to those who invest their money in the company, meeting the expectations they had when assuming the investment risk.
Increase profits. This means generating economic benefits with each fiscal year, representing a long-term objective to be able to maintain over time.
Improving management compensation requires various actions that allow for obtaining the highest return on organizational resources through investment strategies.
Ensuring social responsibility. In order to fulfill the social function expected of any organization, it is necessary to establish programs that benefit society.
You may be interested in knowing what the branches of finance are in a company .
Financial management process
It is made up of various activities that are recurrent during the budget year, and other actions that are related to the services. To better understand the administrative and financial management process, it is necessary to know the following stages that must be completed:
1. Identify and define the needs
The first stage of this business process is to determine the needs of the organization (purchasing raw materials or machinery, covering manufacturing process costs, transportation and storage or marketing campaigns, as well as new hires, among others) and the resources (material or human) that need to be covered. To do this, it is supported by the preparation of a budget.
2. Select financing alternatives
Once the financial needs are known, the economic structure of the company must be analyzed to find the sources that will finance them, which may be using own resources or third parties. If external financing is required - bank credit, capital market or another instrument - it is necessary to analyze the terms, the interest rate and the rest of the conditions, to determine which is the most pertinent option.