Analysing and Evaluating Financial Management

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Analysing and Evaluating Financial Management Effective financial management is essential to the success of a business or organisation. This essay will analyse and evaluate the importance of financial management to a business and the main factors which would influence the ability of the organisation to achieve its financial objectives of liquidity, growth and profitability. Some of the main reasons for failure in the area of financial management is: lack of capital, too many long term assets, lack of control over credit (letting customers accumulate too much credit) or inventories, poor cash flow, and having too high of costs. Especially for a small business, financial management is extremely important as if you don’t keep an eye on it regularly a business can very quickly go under. Good accounting processes and sound financial management are one of the best ways that a business or organisation can make sure that they remain profitable and solvent. The foundation of many successful business operations is how you manage the finances of your business, its cash flow and profitability. (Effecta, Advanced Business Coaching, Accountancy & SME Consulting Company, 2010) The objective of a business relates to the goals that an organisation sets out to achieve within a timeframe. For a business to successfully achieve these goals or objectives, they often create business plans that assist them in making sure that their objectives are achievable, as well as assisting them to actually achieve them. (Businesscasestudies.co.uk, n.d.) A business plan is a management tool. The plan makes benchmarks and indicators of which the progress of the business can then be assessed. The business plan shows what the business is capable of and fosters employee commitment to the business, focuses the employees concentration on the goals and objectives of the business and encourage forward thinking in regards to those goals and objectives, as well as the well-being of the business. Another important aspect of a business plan is the break-even analysis. This is an essential step that will tell the owner if the business will make money during a specified period by showing the break-even point. The break-even point is where the business has the same amount of revenue as they do expenses. This means that the business is neither disadvantaged or advantaged. Financial management includes the acquisition and use of finance, planning, organisation and controlling. Acquisition of finance refers to getting finance. This part of financial management asks many important questions about a business’ finances, including what type of finance and where do we get it? As well as how is it invested? You must acquire an asset which will yield the required return. To answer the aforementioned question of where do we get finance? A business must look at all of their options in order to make the best decision for the business. Most people would immediately think of a bank in regards to acquiring finance, but this isn’t the only way. There are many different ways to acquire finance, including a fast growing method called crowd sourcing through websites like KickStarter.

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