Financial Management

Many people would expect starting a business to be very easy. With a product or service to sell and enough knowledge to market it properly, many people think that they are ready to go. Starting a business, however, takes more than just products or services and simple knowledge. It takes much more if you want to make your business grow.

At the very start of the business, owners or shareholders will instantly be faced with financial matters that require financial decisions. Questions such as what assets to invest in and where to get the cash needed for such investments would require financial know-how. And as the business venture thrives, shareholders have to manage daily finances and make long-term financial decisions. All of this definitely requires more than just a little knowledge in business. It requires knowledge in an entirely different area – the area of financial management.

Defined, financial management is the process of planning financial decisions with the ultimate goal of maximizing the stockholders’ wealth. In the world of finance, financial management is also known by other names like corporate finance, business finance, and managerial finance.

While the ultimate goal of financial management is clear “maximizing stockholder’s wealth,” the path leading to this ultimate goal is paved with other small goals. Goals like day-to-day profitability and properly managing daily finances are generally regarded as short-term goals, and achieving these goals belongs to the realm of short-term financial management. Aside from these, financial management also tackles other long-term goals, including business profitability and viability.

Achieving the goals of financial management, both long term and short term, involves a lot of processes and activities. These usually include cash management, financial risk management, financial accounting, managerial accounting, and others.

Now, these may sound like a multitude of tasks, especially for businessmen who are only managing small businesses. With the many financial management software products available, however, handling all of these tasks may become easier. Alternatively, businessmen may avail themselves of the services of a financial manager or seek the aid of companies providing financial management services.

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Financial Management Basics

Financial management is an area of business that addresses the monetization and fiscal decision makings that involve running a business enterprise. It will also introduce you to the tools used by financial experts to analyze and create these thinking steps that dictate a corporation’s financial direction. The main objective of financial management is to improve shareholder value and expand the corporate stake in its revenue generating processes. In principle this is fairly different from corporate finance, which studies the fiscal decisions of all organizations versus one body the concept and analysis of corporate finance is also applicable to the financial management problems taken up by all business practices.

Financial management can be broken down into short term and long term decision making rationale and techniques. The decisions made in Capital Investment can be equated as long term decisions as they are used to project investments; in many methods as to use equity or debt for financing the investment or imbursement of dividends to shareholders in a corporation. On the opposite side, short term decision processes involved incumbent balance of acquired assets and updated liability; focusing on how to manage the liquidity of the company and inventory. Short term loans and lending such as credit extension to customers is part of this.

Financial management is also related to investment banking by way of corporate financing. The basic function of an investment bank is to review the corporations fiscal requirements and deliver the necessary capital that will address the identified necessities. This is why financial management sectors are referred to corporate finance and is associated with transactions that involve capital generation for the development, acquisition and expansion of business.

Financial Management and Capital budget

Financial management has where to appropriate financial resources and balance out emerging prospects (potential investment) in a methodology called capital budgeting. Generating the investment and allocating the necessary capital necessitates making the conclusion to estimate a long term value of the prospective and agree on its function, future cash flow, size and if it is the right time to act on a project.

Generally speaking each perspective’s value is estimated by employing a DCF valuation or a discount cash flow valuation process and the plan that generates the peak worth, as measured by the subsequent net present value or NPV will be nominated for financing. This creates a liberal prerequisite to estimate the extent and control of the entire incremental money stream that will be created once the project is financed.

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Financial Management Guides For Entrepreneurs

Having a good book keeping system is a great thing for your business, but it is what you do with the information in the books that matters the most.

You need to establish effective methods for financial management and control to accomplish important daily financial objectives and overall financial goals.

Having a good financial management system would help you become a better macro-manager as it would: help you manage proactively rather than reactively; help you plan ahead for financing needs, and make your loan approval process easier whenever you need credit. It would also help you provide more useful financial planning information for investors and have access to a great decision-making tool to make your operation more profitable and efficient.

It is not enough to have great products, services or marketing strategies, if you don’t manage your money well and you run out of cash all your effort will be in vain.

You must understand that entrepreneurs generally fail for one reason; they run out of money. To avoid failure therefore, you must understand the fundamentals of financial management. Once you understand the basic principles and concepts, you would be able to understand the pattern of your finances enough to make wise strategic decisions and you would be able to recognise the warning signs of an impending crisis.

You also need to have an effective managerial aptitude of the finances in your business or department. To achieve this you need to manage your finances with regards to: planning, monitoring and reporting.

Planning -taking a look at the future of the business and ensure that you will be financially healthy in the short and long-term.

Monitoring -keeping a watchful eye on the finances of the business so that when it derails you can act immediately to bring it back on track.

Reporting -having a clear picture of how your business has performed financially in the last financial period (month, quarter, year, etc), and using the information to guide your decision making for the next financial period.

These three points can be broken down into nine financial principles:

PLANNING:

1. Keep to the cash flow budget
No matter how lucrative or promising a business is, when you run out of cash, the business will fail. Therefore budgeting helps you focus on the money as you plan for the future of your business. The truth is that accounting debits, credits, accruals and provisions are confusing and misleading. Watching your cash in the bank is a much easier method when planning. Besides it is the cash in the business bank account from one month to the other that really matters.

2. Build your financial models yourself
When the owner or manager outsources the building of the business’ financial models and forecasts to someone else, that business owner would have difficulty understanding the minute details and vital relationships within the business. He or she would not know how to change the model when circumstances in business change. If you are not sure that you can design and build your own business model or you have never done it before, then hire a professional to teach you; start with a simple financial model and cash flow forecast in a simple spreadsheet package. You and the professional can do it together on your first attempt.

3. Focus on the timing of the income
Whatever business you do, most customers will always plead that you allow them pay you late, but your suppliers will try to get you to pay them early. So if you let your customers have their way all the time, they would grab one arm each and pull until they rip you apart.

Debt is cash that you have no access to even in times of need. It is more useful to the debtor than it is to you. A manager of a small company narrated how his company “ran away” when it almost went broke from doing business with a leading retail store in Victoria Island, Lagos. He said his company had to wait until “the goods were sold” before they got paid for their supplies and his staff had to keep calling the store for their money.

You must be aware of the terms of payment and ensure that what you are negotiating is favourable to you; failure to do this could very well be the difference between success and failure.

4. Understand the nature of different types of cash outflows/expenses
Basically there are two types of cash outflow/expenses. They are the fixed expenses and the variable expenses. Fixed expenses are expenses that are a fixed sum irrespective of what is happening with the business. Examples of these are rent and salaries. You pay the same sum no matter how the business is doing. Variable cash outflows are expenses that change with the activities of the business. Examples of these are commissions and courier.

Fixed cash outflows can be very risky for your business. For instance, if a retailer records very low sales in a particular month, the company would pay less for delivery to its customers and it would pay less in sales commissions to its sales people. However it would pay the same amount in rent even though it failed to meet it sales targets. On the flip side, if business picks up and the retailer makes huge sales, the rent stays the same and the extra profit is saved.

The variable expenses might also pose a risk as these are affected by the retailer’s activities. They could easily increase with the profit and eat into it.

Note that variable expenses could also increase even when the profit has not increased. This is because variable expenses increase with the activity, and not all activities are profitable. The good news is that variable expenses can be checked. Where there is difficulty in checking a particular variable expense (that is contributing to the profit), then the business owner should consider converting that variable cash outflow into a fixed cash outflow. For instance, the increase in a retailer’s sales could increase the sum he spends on deliveries to his customers (where sales deliveries are offered for free). The retailer could change his contract with the courier company; switching from a pay-per-delivery contract to a monthly payment of a flat fee – bearing in mind that the same amount would be paid should the sales fall in the following month.

5. Keep both the daily details and the bird’s eye view in mind
Both the short term and long term progress matters; the loss of one could cost you the other. When your accountants send you those financial reports, do you really comprehend the information and the implications of what the reports are saying, and do you know how to apply whatever information those reports are giving you to make informed decisions? Your reporting system should factor in every detail that would help you and your team make short term and long term progress.

MONITORING:

6. The bank balance does not lie
It is what your business account’s bank balance says that should guide you the most. The forecasts and analysis come next. If the account is empty, then you did badly -where it counts.

7. Mark out your break-even point
Identify your break-even point. If you have not put a cost to research time, or factored in the generator-diesel, newspapers and journals, and even mobile phone call credits then you do not know your break-even point.

8. Stay up to date
You cannot afford to be overly pedantic with your finances anymore than you can afford to be lackadaisical. Maintain a balance in between.

REPORTING:

9. Report results with a purpose
Bear in mind what the reports are meant to achieve as you put them together.

As you work your way through these principles ensure that you understand what each principle means and apply them effectively. If you are doing well then push yourself further; seeking out what else you can do to apply them even more effectively. Progress never ends.

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The Importance of Financial Management

The present world is synonymous with consumerism; therefore, management of finances is often a difficult task. Individuals can spend their money on a wide range of products or services. Over-indulgence in such products can lead to high credit card bills. In many cases, individuals spend their money before earning it, which can lead to a fiscal crisis. At this point, a financial management book comes to the rescue.

Every individual dreams of becoming a millionaire, especially in a relatively short period of time. However, dreams are not enough, and you will have to demonstrate effective monetary management. A management book contains useful resources and tips on how to manage your money.

A finance management book will give you definite steps to optimize your income and prevent losses. By reading it, you can equip yourself with a definite road map toward economic independence.

An important strategy listed in a finance management book revolves around changing your mindset. As a consumer, you would have to curb spending and wisely invest the money that you earn. Your perception of money should change if you wish to become wealthy. Most financial management books list effective habits and strategies, and it will do you a load of good if you master these habits. You should be able to understand the cash flow and manage it effectively, so that your income is more than your expenditure.

Almost every individual stands a chance of benefiting from knowledge related to monetary management. Every individual and business has financial concerns and hence it is important to learn the nuances of finance.

Fiscal management can be a tricky issue, and hence a financial management book is very handy. Effective financial management should help curb stress related to finance. Financial management equips you to pay your bills on time, and simultaneously have a good social life. Some of these books have been written by experts in this field, giving great insight, depth and knowledge. Financial management books are worth the investment if you can learn and master the listed strategies.

An important financial management strategy is to limit purchasing products on credit. Effective management programs help you save money for future needs.

The first step in management is making a list of all the sources of income. Follow this by a list of all your monthly expenditures. If you still have money left after taking care of all your expenditures, then you would need to invest this money in an effective way. Having an emergency fund is a great way to tackle unexpected expenditures.

Financial management can help if you wish to have a healthy, post-retirement life and a nice vacation home. It also helps you to take care of your child’s education, especially college fees.

Some people are of the opinion that they do not earn enough to save for future expenditures. No matter how much you earn, you can save effectively by reviewing your finances and introducing budget cuts. Financial management books [http://www.tmhshop.com/management-books] will provide you with the basic outline that is needed to overcome financial stress.

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Financial Management

Many people would expect starting a business to be very easy. With a product or service to sell and enough knowledge to market it properly, many people think that they are ready to go. Starting a business, however, takes more than just products or services and simple knowledge. It takes much more if you want to make your business grow.

At the very start of the business, owners or shareholders will instantly be faced with financial matters that require financial decisions. Questions such as what assets to invest in and where to get the cash needed for such investments would require financial know-how. And as the business venture thrives, shareholders have to manage daily finances and make long-term financial decisions. All of this definitely requires more than just a little knowledge in business. It requires knowledge in an entirely different area – the area of financial management.

Defined, financial management is the process of planning financial decisions with the ultimate goal of maximizing the stockholders’ wealth. In the world of finance, financial management is also known by other names like corporate finance, business finance, and managerial finance.

While the ultimate goal of financial management is clear “maximizing stockholder’s wealth,” the path leading to this ultimate goal is paved with other small goals. Goals like day-to-day profitability and properly managing daily finances are generally regarded as short-term goals, and achieving these goals belongs to the realm of short-term financial management. Aside from these, financial management also tackles other long-term goals, including business profitability and viability.

Achieving the goals of financial management, both long term and short term, involves a lot of processes and activities. These usually include cash management, financial risk management, financial accounting, managerial accounting, and others.

Now, these may sound like a multitude of tasks, especially for businessmen who are only managing small businesses. With the many financial management software products available, however, handling all of these tasks may become easier. Alternatively, businessmen may avail themselves of the services of a financial manager or seek the aid of companies providing financial management services.

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Finance Management Courses – Why Financial Management is a Popular Program

Finance management or financial management is that aspect of management which involves the application of general management principles to specific financial operations. It basically entails planning within a business enterprise to ensure a positive cash flow and maximize shareholder wealth. Financial management includes a large number of complex practices and processes, including the administration and maintenance of financial aspects and identifying and managing risks.

The decisions that financial managers need to make are in regard to financing, investments, payouts of dividends, and working capital management. They generally encounter difficulties in the form of measurement problems, uncertainty, and temporal spread. Financial managers need to be conversant with the tools and concepts of financial management, such as capital budgeting, sources of finance, various types of financial statements, financial accounting, financial reporting, and risk management.

Managerial or corporate finance is the task of providing funds for a corporation’s activities. Its goal is the maximization of the company’s wealth and the value of its stock, while balancing risk and profitability. People entrusted with the financial management of corporations must be sound in the practices of financial management if they are run an organization successfully.

Given the importance of financial managers in today’s business environment, it is not surprising that a wide variety of courses from the full-time MBA to the online courses abound.

Finance is perhaps the most popular choice for candidates seeking management degrees. The role of the financial manager is to oversee the generation of financial analysis and reports to help with the company’s decision making, business development, and more importantly, strategic planning. The job of the financial analyst is to use these tools and devices to shape the company’s investments and business growth. Financial analysts and managers today play a crucial role in effecting mergers and global financing and expansion.

If you are looking for a role in finance in a medium to large corporation, the degree program is what you will need to look at, given the complexities of financial management in large corporations. When choosing a program, remember that with finance and management degrees, the institute that you pick must be reputable and recognized in the field. Accreditation bodies exist specifically for MBA programs to oversee the consistency and quality of business education, so it is preferable for a student to select a program that is accredited.

If however, you are already running your own small or medium enterprise or non-profit organization, and need to apply the tools of financial management to run your organization more effectively, you can opt for the shorter courses or the online programs offered by the many institutes.

Several MBA programs offer tailor-made courses that could be full-time, part-time, and distance learning courses with specialized concentrations. Accelerated MBA programs involve a higher course load and more intense and examination schedules. Part-time courses are another option, with classes being held in evenings, after normal working hours, or on weekends. Executive MBA programs are developed to meet the training needs of full-time managers and executives, allowing them to earn their degrees without compromising their jobs.

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Financial Management Programs

Financial management is one of the most important things you should learn if you wish to venture into any kind of business. It involves financial decisions, techniques on how to ensure high profit, as well as the tools and the methods of analyses in order to come up with sound decisions.

Starting a business and making it grow, as we all know, is not an easy task–even if you have all the financial resources you need for your business to thrive. Remember that your money is just a tool for a successful business. What really determines your success are your skills in handling your money and all other your skills in making decisions.

If you are new to business, don’t worry because there are literally hundreds of financial management software programs available today. The right one can help you make accurate and objective decisions regarding your finances. Financial management programs can help you take care of cash management, accounting, payroll reporting, check preparation, financial risk management, and others with ease and convenience.

There are several kinds of financial management programs, and each kind has its own features, advantages, and disadvantages. It is important to choose one that truly fits your needs. It is not enough to get one that can make work easier for you – you need one that can help you optimize your profit.

You can check reviews on each product before you narrow down your choice to one. Compare their features as well as their prices before you choose a particular program.

Financial management programs do calculations automatically for you, so you don’t have to worry about having to deal with too much numbers. It is advisable to choose programs with basic features first if you are starting a small business. If you find it hard to budget your finances and plan your business, you can choose programs with budgeting features.

Advanced financial management programs aid in billing as well as preparation of payrolls and invoices. Look for these added features if you think you need them. Furthermore, if you are more oriented toward visuals, choose programs that make use of graphs and charts, as these probably will be easier for you to use.

Like any other decision you are going to make in business, deciding which programs to use can trigger a chain reaction, so be very careful and do not decide too quickly. It may sound as simple as deciding what to wear for a formal gathering, but financial management programs are not like a tuxedo – they can give your business long-term solvency, not just a good first impression.

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Project Financial Management – 10 Key Steps to Streamline Your Business

Over the past decade or so we have been constantly bombarded with news about private and public projects that have either delivered scope at well over the expected budget or had to reduce scope to even come near to the original budget. Current thinking within project management methodologies only discuss the financial aspects of a project at a high level, leaving the “student” without any real way of working to greater understand the impact of their decisions on the financial results of the programme. In turn, the business case development is usually given minimal time and is a rushed job in the end. Investing in the correct people and time up front to review feasibility and secondly the business case is a must to ensure the total on target delivery of a project.

In the financial climate we are in, where budgets and costs are being cut, the time is now to ensure that whatever funding a company has available, that they invest it wisely – to do that you need to ensure that the project in the end – budget, costs and benefits are comprehensively reviewed.

With this in mind – using the Pathfinder Project Management Methodology as a basis, below are the 10 key steps to successful project financial management

(1) On new projects – invest time creating accurate feasibility studies and business cases, if this is a rushed job – in the end the results will deliver overspends.

(2) Review your project portfolio – are you carrying out the correct projects, are they nice to haves, are they being done for internal political gain – ensure each business case is robust and adds value to the future of the firm – spend time using previous experienced individuals to review and re-review the business case.

(3) Concentrate reviews just as hard on the benefits as the cost. In 80% of projects, once they are in, nobody wants to go back and review if they delivered as promised. So ensure from the start of the project you continuously check that as well as costs being on budget, that changes to your project have not altered your benefits.

(4) Cost cutting is not always the answer – allocate resource to “added value” projects – in today’s world cutting heads is a an easy short term fix, do not throw out the baby with the bath water and leave the firm with projects in-flight with no experience to deliver them. Instead review your project spend and as in (2) concentrate on adding value.

(5) Workforce development – up-skill their financial management knowledge, develop staff in leadership, health and safety, motivation etc – so when you put a non-finance manager in charge of a large project, is it not about time they were given the financial know-how. Don’t leave financial management to chance – develop your workforce.

(6) Break down the project into financially manageable sections. Too many projects work on the basis of a “pot of cash” – spend it as per the budget and if luck is with them, great! Instead take the “pot” and break it down into manageable sections – mapped to your project structure, that way you can see where budgets are by “workstream” and what ones are over/underspending.

(7) “one point of contact accounting” – too many managers will lead to budget overspend – following on from (6) above – The overall programme manager is responsible for the budget in total, at the same time each head of the projects parts should then be responsible for managing their part of the budget. This leads to one finance manager dealing with one project manager, ensuring a consistent relationship.

(8) Deliver focused and meaningful financial reporting to enable accurate decision-making. More is less – agree on what reporting is required from the project at the start and continuously improve until it is what the project needs to manage the programme of work. Because an accountant can deliver 20 pages of analysis a month to each project manager it does not mean that it’s correct – save the trees – minimise the reporting and improve the decision making.

(9) Communication – have a strong relationship between your project and finance manager. Finance cannot be back office, they need to be part of the project team and be seen to be so, and therefore open and honest communication channels lead to no surprises.

(10) Finance should be made aware of all potential risks / issues and a probable cost – if a problem has or may arise warn finance early, finance will be limited to what they can do to assist “after the event”.

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Program Financial Management

Program Financial Management includes identifying sources of funding, integrating individual project budgets, developing a overall budget and controlling costs throughout the lifecycle.

Program finance management sets the structure for managing finances efficiently. Key elements of finance management includes aggregating the individual project budgets as well as budget for the effort involved in managing the initiative as a program.

A program is a financial investment. The ability to steer the program within the budget limit has a direct impact on the organizations revenue. A common understanding of the cost drivers and the cost limits are essential in finance management.

The primary purpose of finance management is to ensure that the program is completed within budget, and that the finances are managed in a way that is in accordance with the organization’s rules for financial control.

Program managers are generally involved in financial management of the initiative starting from the initial pre-approval stages.

The first process under financial management is Establish Program Financial Framework. This process falls under the Initiating process group and is generally performed at the beginning of the lifecycle.

Connecting the phase, process group and the process, it would be the Program Initiation Phase, Initiating process group and the process falls under Financial management knowledge area.

The process Establish Program Financial Framework is about determining the funding sources for the program and creating a plan for managing funding flows and ensuring money is spent efficiently

A Program’s financial framework varies according to the environmental factors in which the program operates. Common environmental factors that affect the financial framework of a program include cost, size, geography, industry and duration.

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Financial Management For Your Non-Profit

Financial management for a non-profit is as important a function of the top management as in the case of any for-profit business organization. Effective financial management ensures that the non-profit remains financially sound under all situations, and its operations run smoothly. At the same time, the best utilization of resources and donors’ funds is made when the financial management is effective.

Multiple funding sources

A good financial manager of a non-profit will have an overriding concern to ensure that the organization receives funds from different sources. It may include both private and public grants, individual donations, and fund generation through various programs and events. Heavy reliance on a single source of funds can be risky in the long run. It can destabilize the organization at any point of time if the single donor is unable to commit funds due to any reason.

Investing surplus funds wisely

To ensure efficient utilization of financial resources, the non-profit should maintain a minimum cash balance that is required to maintain a normal cash flow. But any amount over and above the cash flow limits should be invested in safe investments that produce a return on the investment as well. This is essential to keep the funds dynamic and offset the impact of inflation on the surplus funds.

Maintaining a healthy balance sheet

The success of financial management is best reflected from the non-profit’s balance sheet. It must include surplus funds for any contingency expenses, emergency based projects, future debt retirement requirements, and any fixed future expenses such as purchasing new equipment for the office. There must be sufficient working capital to ensure smooth running of the day to day activities. Finally, the balance funds must be invested efficiently in safe and high-return assets.

Effective budgeting for individual programs

A key operational part of financial management is to ensure that each project or program supported by the non-profit has a sound and viable financial budget. Accurate and detailed budgetary exercise will ensure that the non-profit does not involve with nonviable or ineffective projects. That will save any unnecessary drain on the valuable financial resources of the non-profit. Secondly, effective budgeting will account for various expenses and overheads associated with a particular program or project. It will ensure that there is no wastage of valuable resources, and overheads are kept under strict check.

It is crucial for the non-profit managers, directors and the head of the organization to have a good grasp of the basics of financial management. It is the responsibility of the men and women at the top management level to ensure sound financials for the non-profit organization.

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