Financial Management: Scope, Objectives, and Importance

Financial management plays a crucial role in any organization particularly in the current rapidly growing business environment. It involves the control of all the monetary processes of an organization together with the supervision of the same. Financial management can therefore be described as management of funds, in a way that they will be utilised appropriately, protected and that potential opportunities for its development will be identified. Financial management plays an important role in firms regardless of their age, strategic goals, and objectives that need sustainable competitive advantage.

Financial management is a general process of managing and controlling the financial resources of an enterprise with a view of achieving its objectives. It requires understanding of various financial theories and how to use various forms of financial tools that are used in running an organization. Due to increased technology, organizations are in the process of automating most of their financial activities using the financial management software. In addition, it enables the users to save time which is important when it comes to the strategic, and analytical work of finance specialists.

In addition, since businesses are going international, organizations operate under different laws such as e-invoicing in Saudi Arabia and e-invoicing in Riyadh. These regulations also improve the knowledge of compliance and preciseness of the fiscal operations. Strategic financial management of an organisation should not only fulfil legal requirement of the country of operation but it should also bring change in accountability and transparency. Since the strategies of financial management in any organization work, the organizations are capable of enhancing their financial position and making right decisions on the development and profitability of business.

What Is Financial Management?

Fundamentally, financial management is the process of creating a business blueprint and making certain that all divisions are on board in the implementation of the plan. Financial management enables the CFO or VP of finance to produce the information that helps to develop a strategic plan, make investment choices, and provide information on funding strategies, liquidity, profitability, and cash flow. To these ends, organizations turn to ERP software, which centralizes many financial operations including accounting, fixed asset management, revenue recognition and payments. This integration guarantees real-time tracking of the company’s financial health and at the same time makes daily operations easier such as the period-end close procedures.

Objectives of Financial Management

Maximizing Profits:

To increase the profit, it is important that the companies should be keen on the increasing cost of the raw materials as this will lead to increase in the cost of product. Blue collar companies can forecast for the costs and find out how to reduce the costs by searching for other suppliers or different materials to ensure that the profit is maintained healthy despite the variation of the costs of the inputs.

Tracking Liquidity and Cash Flow:

Liquidity and cash control is one of the most important indicators of the financial condition. Managers need to pay special attention to the need to have adequate cash reserves to meet organization’s short-term commitments which include salaries and other expenses. Daily, weekly, or monthly, cash flow projections enable organizations to recognize early when they may be low on cash and take early corrective action to seek funds or improve their cash management.

Ensuring Compliance:

Adhering to all state, federal and other requirements particular to the industry is crucial to avoiding fines and to preserving the image of the organization. The objective of financial management is to periodically review and modify the policies and procedures to reflect the changes in the laws and requirements. This way the management reduces risks that are associated with the noncomplying with the provisions as well as enhances credibility among the stakeholders.

Developing Financial Scenarios:

To develop the strategic plan, it becomes essential for financial modelling to create financial scenarios. Through evaluating the present status of the business and estimating different market scenarios, models are developed that consider various possibilities. It enables preparation and response to the uncertainties since the business is prepared for optimum exploitation of opportunities.

Manage Relationships:

Investor and board management relations are important in ensuring clear and accountable relationship with investors and the board. Transparency of financial results, business plans and future challenges ensures cooperation and encouragement. This is possible if businesses involve stakeholders frequently and respond to their c concerns; it is even possible to enhance partnership that will lead to success.

Scope of Financial Management

Planning:

Budgeting is an essential activity in which the financial manager estimates the company’s requirements for funds to continue its operations, expand its operations, and respond to contingencies. Such planning involves grouping of expenses as capital expenses, travel and entertainment expenses, cost of workforce, and operations cost. With this information shared with other colleagues, the financial manager cements conformity with other departments and makes sure that others have the right information they need to make good decisions.

Budgeting:

Budgeting is the process of distribution of the available financial resources within the company to meet different needs like rent, wages, raw materials and other overhead expenses. This means that in any organization’s budget, there are provisions for contingencies as well as possible future business ventures. Managers keep a central budget along with other subsidiary budgets for funds such as cash and operating budgets which may be fixed or variable based on different conditions.

Managing and Assessing Risk:

The Chief Financial Officer has a central responsibility of managing and accessing several risks that affect the operations of the business. They consider the risks that impact the market on investments and on stocks, risks connected with customers’ payment, risks connected with the management of cash, and operational risks such as cybersecurity. Through compensating controls, the financial managers make sure that the company is stable in case of occurrences of unpredictability.

Procedures:

Lay down procedures are critical in the management of the financial data within an organization. The financial manager defines the procedures for handling the financial information like invoices or reports with stress on the issue of security and accuracy. These written procedures also provide the delegation of authority and responsibility in the processes of managing finances in the organization.

Importance of Financial Management

Strategizing:

Financial planning entails recognizing the required financial operations to execute the current and future organizational objectives. Financial strategists use existing data and trends to produce relevant information valuable for further scenarios. In this way, they are able to determine which of the potential financial results are beneficial for the company according to the chosen strategic directions and help in making the correct decision concerning the further actions and achievements of the company’s strategic vision.

Decision-Making:

A financial manager is very important in helping the business leaders in their decision making by presenting them accurate financial reports at the right time. These documents are known as key performance indicators (KPIs) that help to measure the company’s financial standing and production performance. The financial manager also provides this data to the leaders so that they can assess various strategic possibilities and determine the optimal methods for implementing those possibilities as well as advance the business.

Controlling:

The main idea of financial control is to achieve compliance with the adopted budget and make a positive contribution to the company’s vision. Financial managers set performance standards and keep track of the expenses within the department compared to strategic goals. Through the continuous monitoring of the financial results and the resolution of any disparities they contribute to the sound management and accountability of the organization, which in turn ensures the effective implementation of the strategies of the company.

Conclusion:

Hence, optimizing organization’s finances is important to those organizations that strive to counter the tasks that define today’s business climate. When financial professionals are engaged in planning, controlling, valuing risks and making strategic choices, they can be very useful to a business organisation. Effective financial management and the application of the best financial management instruments enable businesses have the right financial position and be in a position to respond to new business environments and make the right decisions that can help in the achievement of goals and more revenues.

However, as organisations try to adopt practices like Saudi Arabia e-invoicing and Riyadh e-invoicing, compliance and effectiveness should be an issue. It also assists in the minimization of risks, while on the other hand, it enhances the probabilities of transparency and accountability in all the financial related activities. By analyzing the extensive issues on financial management, an organization is in a right strategic position to operate in a competitive market in order to realise its success and financial objectives in the course of facing the market challenges that prevail in the current world.