Basics of Financial Management – Part 1

Finance is one of the major administrative functions in business along with production, marketing, personnel and materials management. It has great economic and social significance. Business finance directly affects the production, marketing, personnel, research and development and they are often of so much importance that they influence the overall operations of the company. Financial management can be defined as the activities concerned with financial planning, programming, budgeting, raising and administering of funds used in business and financial controlling for the overall financial viability and growth of any organization.

Business finance is an important aspect of financial management which deals with precedents, practices and policies based on expediency of experience, or anticipation. It discusses both fact and policy. It is concerned with fact in so far as it describes the prevailing precedents and practices involved in financial management and administration. It deals with policy in so far as it succeeds in formulating principles or rules of expediency which may be a guide to sound financial procedure.

Financial management has also to deal with any financial problems of a business organization and to sort out the problems with financial strategy. The financial problems include the financial aspects of the promotion of new enterprises and their administration during early development, the accounting problems connected with the distinction between capital and income, the administration questions created by growth and expansion, and, finally, the financial adjustments required for the bolstering up or rehabilitation of a business organization which has to come into financial difficulties.

Financial management is the most important discipline of function management of business. The financial viability of business depends on the efficiency and effectiveness of financial management. It covers wider area of all financial activities of a company. Financial resource planning, mobilization of fund, budgeting and budgetary control, working capital management, financial accounting, cost accounting, fixed assets management, capital budgeting and capital rationing, capital and revenue expenditure, ratio analysis, breakeven analysis, fund flow and cash flow, and management information systems are the integral parts of financial management.