How Important Is Financial Management?

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To put the discussion in a nutshell before we dive right into the details, financial management is probably the most important factor of any business, or in fact the relationship one has with their personal finances. By mere virtue of entering into a business deal in the first place, you are applying financial management principles, so too when you engage in anything that earns you your living as an individual.

Obviously we’re going to delve a lot deeper into the topic of financial management, particularly with regards to its importance, through the exploration of the core principles that constitute the practice. First we perhaps need to clarify what it is officially by way of definition.

What is Financial Management?

Financial management is essentially what it says on the tin – the management of finances, but in the context of an enterprising organization, this would be with the aim of achieving that enterprise’s goals and objectives. So it entails everything which comes together as part of the organizing, planning and monitoring of the organization’s financial resources, to ensure survival and profitability.

There are a few areas identified from the Lehman’s point of view which constitute the processes involved with the practice:

Financial Data Analysis

The analysis of financial data as part of the practice of financial management is so important unto itself that it pretty much makes up the entire practice. You can only institute plans and implement financial management strategies if you have some information to work with in the form of the data around the organization’s finances. It goes way beyond just being able to read charts or perhaps even draw them up, requiring the expertise of professionals such as someone who might have a bachelor’s degree in financial management. These are the experts who know exactly what indicators to look for and they know how to make the requisite connections which give value to the data collected.

Financial Planning

Pretty much the same applies to the planning side of the financial management umbrella – data is organized into information that means something to professionals and experts such as business analysts and the financial managers themselves, paving the way for the mapping out of a plan to put into place the requisite course of action. So if the organization isn’t performing as expected or isn’t performing well at all, it is through the management of its finances (resource allocation) that it can be revived.

Breaking New Ground

Breaking new ground as part of the financial management process usually comes in cycles, the first of which is inevitably at the commencement of the organization’s enterprise. When a gap in the market is identified and an opportunity is pursued, financial management is practiced, to be practiced throughout until new ground is broken again when strategies around growth and expansion are entertained, either following the business’s success or perhaps if it may be experiencing some difficulty.

So, if we’re to sum up the importance of financial management, basically it can be the singular factor which determines the success or failure of an organization whose success or failure depends on how it manages its financial resources, which is every single organization in existence! That’s why business rescue specialists have a financial management background as far as their skills and qualifications go, so too growth and expansion specialists.

That’s also why financial management teams of the biggest corporations are filled with members with an impressive list of credentials, such as Chartered Accountants and all kinds of professionals who fall under the financial management umbrella.