Managing your finances isn’t as easy as looking at the NFL odds. Starting a business can be tough, especially if you have little to no experience managing your finances. For this reason, we’ve come up with a guide to how you can manage your business’s finances more easily.
What is Financial Management?
Financial management encompasses four main things, cash, credit, profitability, and expenses. All these four things assist the organization in carrying out its objectives satisfactorily when managed correctly.
Financial management can also be classified as strategic planning, directing, organizing, and controlling any financial undertakings within the business.
The Four Different Types of Financial Management
It’s important to note that financial management has four categories. Below we take a look at the four different categories of financial management to help you get started.
Financing Decision
Financing decisions focus mainly on the equity and debt capital proportion concerning their capital structure. Financing decisions are made based on these factors and play a vital role in relation to financing its assets, shareholder value creation, and investment-related decisions.
Investment Decision
When referring to investment decisions, we are referring to how the business invests its funds into different assets. The company does this to try and gain the highest possible return for those that have invested in the company. Investment decisions can be made on a long-term basis and are also known as capital budgeting.
Dividend Decision
Dividend decisions focus on how the net profit is shared within the company between shareholders. A certain portion of the money is retained for the business to meet investment requirements. In many instances, these financial decisions are mostly made with the intention of maximizing the shareholder’s wealth.
Working Capital Decisions
Working capital decisions operate within two factors: monitoring and usage, and can be used in a ratio format. The working capital decisions are meant to ensure that the company operates efficiently by monitoring these two factors, current assets and liabilities.
How to Improve Your Financial Management
Improving the financial management of your business isn’t that difficult. Below we take a deeper look at how you can improve your financial management.
Ensure That You Have a Clear Business Plan
A business plan should have your long and short-term goals. A great business plan will also showcase what you intend to do with your capital, profits, and other money. It should also detail what money you need and where it will come from.
Monitor Where Your Money Will Be Going
Monitoring your progress shouldn’t be something that happens at the end of the month or year. Regular check-ins need to be made on a daily basis to ensure that you’re reaching targets, not overspending, and are constantly in line with your plan. Reviewing your position is always good and keeps you on top of things.
Know Your Costs
Knowing the cost of production and staying on top of your daily profits will ensure that business doesn’t go under. As a business owner, you should be aware of your running costs, such as wages and other costs; therefore, you should know these.
The Importance of Budgeting for Your Business
Budgeting is the process of allocating funds and working within that monetary allocation. Doing this for your business allows you to see where your money is going and how much you spend, especially over time.
With budgeting, you can budget for an upcoming period which can help you see how much money is needed for your goals.
Bottom Line
Financial management has many spheres to it, and understanding where your money goes can be amazing for you and your business. There are many things that you can do to help improve the financial management processes of your business. Knowing the basics to help yourself and your business is always good.
