business finance essay

business finance essay

The importance of financial management in business

1. Introduction

The real importance of financial management is observable from two different points of view. First, financial management is important for business success since it is the basic tool for regular operation, adequate decision making, and risk administration. From profitability to productivity, the evidence of how good financial management is essential to entrepreneurial success is undisputed. Second, financial management is crucial for national economic growth too, as it leads businesses to work productively. According to Benevenuto, financial management aims at improving productivity, as the business is able to minimize the costs of capital, which results in a search for the maximum possible productivity of its non-fixed and natural resources.

Empresas’ overall mission is aligned with the necessities of its environment, and the principal objective is to develop careers and contribute to environmentally sustainable economic growth and the development of human beings. Moreover, when linking the finance area with the necessity of sustainability, one of the most interesting areas emerges: the finance of a business that claims its vocation to be sustainable. Therefore, the final goal of financial management is to generate good economic results for the shareholders or investors, while the intermediate goals will be applicable to investors, employees, suppliers, customers, and society in general. An excellent management is expected as a result in the financial area of the businesses that stand out.

2. Benefits of effective financial management

Some of the most important that stem directly from this cluster of benefits are a decreased risk of encountering cash flow problems, a secure future for your employees, and debt that is intelligently managed with a current view of what the future might hold. This knowledge ensures that surprises are minimized. Most entrepreneurs have the same end goal. To retire or sell, move to a private sector company or pass everything on to a younger family member, whether it’s their child or someone already working in the company. Unfortunately, preparing for this is often overlooked, but it should be the top priority instead. To ensure you get the most from this eventual shift, you need support. In addition to what financial management is chasing, it provides you with the financial assistance required to do what you love long term. A personalized plan is tailor-made for you, which will genuinely walk you through all of your important stages of life.

A guide to the importance of financial management and why you should care about it as a business owner. Effective financial management is so important in the short and long term. Entrepreneurs can see their finances boosted if they get the basics right and remember that an emphasis on spending is not a setback. The benefits are numerous and they have the power to exceed your wildest expectations. Financial management is key as there are so many things that can break your heart in business. Get it right and mitigate the risks associated with a lack of funds for operating expenses, a miscalculation in terms of business profits and personal needs. Here are some of the best benefits to look forward to.

3. Key principles of business finance

Unfavorable incidents affect every business, from natural disasters to incidents such as theft or workplace injuries. Financial planning and investment can help you deal with these unexpected hurdles. By staying in touch with potential varied issues a business may face, business owners can have a secure, well-funded plan to meet those obstacles. Business to business finance looks at how to identify and treat these incidents. When businesses have a strong foundation in financial management, both locally and globally, they are able to make wise decisions regarding reinvestment and where to funnel income. Because of this, the business is likely to experience consistent financial growth.

Managing a business’ money is often just that much more complex than managing your personal transactions. It’s crucial to understand the basic principles of business finance to optimize the re-investment in the company to generate the greatest return. When done correctly, your company is better able to stabilize its overall financial status and remain profitable for many years to come. Among the key principles of business finance is working capital management – a course that covers the administration of current assets and current liabilities. Working capital is important because it affects a company’s ability to pay off its short-term obligations, also known as liabilities. Without proper management of working capital, you may not be able to experience profitability.

4. Common financial challenges faced by businesses

Difficulties in obtaining funding. Finally, you will recognize that some entrepreneurs who are just starting a company, particularly in the technology sector, have met the capital issue. Although bank loans provide a lot of funding for companies, this isn’t the best option for small companies or startups. If your company is quite new and your financial documents are not strong enough to obtain bank loans, look into certain types of unsecured funding such as payday loans, equipment, or invoice financing, which can supply you with big amounts of money. Even if your company’s history isn’t solid enough to secure a bank loan, you may be able to secure an SBA loan, given to companies supported by the U.S. Small Business Administration.

Failure to reach sales targets set out by the company. You need to consider the sales capacity of your company and how it can expand over the years. Determine whether the company is selling what the clients want and if the products are used by the clients. Interview a few clients to determine what your firm’s performance is in their eyes and improve the areas in which you might need to enhance your company’s performance.

Difficulties in expanding customer base. Difficulty in getting customers to buy new products is a sign that you need some expert guidance in market research or that you need to think outside the box or else you might slow down the coming growth that may lack capital. Through surveys, focus groups, and interviews, search for meaningful market insights. Marketing doesn’t just refer to finding new customers, but also to how you’re advertising your company to your current customers.

Keeping up with your accounts receivable. It can be tough waiting for the money to come in when you’ve sent out many invoices. This is one of the most common challenges that small business owners encounter and the most frustrating. The goods or services you provided have already been consumed now, but you’re still waiting to get paid. This can be especially grating if you have a payroll to meet. To help overcome, you need an effective collections strategy. A seasoned financial advisor can also give sound advice on how to improve your credit policies without scaring off customers. What’s worth considering is invoice factoring if receiving large, occasional payments is leaving you with inconsistent cash flow.

There’s a good reason why the team handling monetary matters always changes in movies. There’s something relatable and timeless about facing financial challenges. It’s something we all go through at some point. But, when it comes to the stage where you’re facing some challenges in your business, especially as you may need to scale up and make work ‘go faster’, it may become a bit hard to make a logical decision. Here are some common financial challenges you may be facing in your business:

5. Strategies for successful financial management

The company focuses more on how to allocate its resources most properly and effectively, how to maximize consumption in the future and how much to save in the present. Moreover, interest rates and incentives fall to the forefront of the business and determine other important options. The evaluation of financial operations is critical and vital for the enterprise to be able to define policy and make the necessary decisions. The financial operation refers to the external and internal financial structure of the enterprise and it is related to the financing, investment and management policy that regulates the financial interests of the enterprise. The ongoing financial management of the enterprise must be a key choice around which the corporate strategy develops. Any project in transport must involve a minimum investment strategy so that the cost of equity is as small as possible. Every increase in risk must be associated with the maximization of the number of acceptances in terms of risky projects, which can lead to shareholder expectation.

Simply put, achieving a positive financial situation is perceived as the primary objective of companies and financial management. Below we will summarize as much information, the importance, the functions, tools, and strategies of financial management as well as a practical application of financial management to a company in the real sector with foreign capital that operates in Greece. Finance aims to maximize the owners’ wealth through appropriate investment and financial decisions. Furthermore, the achievement of this goal is possible only with the increase of financial stability and the level of operations of the business.