Monday, October 05, 2015

Significance of Financial Management

Significance of financial management in the present day business world

The significance of financial management can be discussed from the following angles:

1) Importance to Organizations

a)      Business organizations: Financial management is important to all types of business organization i.e. Small size, medium size or a large size organization. As the size grows, financial decisions become more and more complex as the amount involves also is large.

b)      Charitable organization / Non-profit organization / Trust: In all those organizations, finance is a crucial aspect to be managed. A finance manager has to concentrate more on collection of donations/ revenues etc and has to ensure that every rupee spent is justified and is towards achieving Goals of organization.

c)       Government / Govt. or public sector undertaking: In central/ state Govt, finance is a key/ important portfolio generally given to most capable or competent person. Preparation of budget, monitoring capital /revenue receipt and expenditure are key functions to be performed by the person in charge of finance. Similarly, in a Govt or public sector organization, financial controller or Chief finance officer has to play a key role in performing/ taking all three financial decisions i.e. raising of funds, investment of funds and distributing funds.

d)      Other organizations: In all other organizations or even in a family finance is a key areas to be looked in to seriously by a competent person so that things do not go out of gear.


2) Importance to all Stake holders

a) Share holders: Share holders are interested in getting optimum dividend and maximizing their wealth which is basic objective of financial management.

b) Investors / creditors: these stake holders are interested in safety of their funds, timely repayment of the principal amount as well as interest on the same. All these aspect are to be ensured by the person managing funds/ finance.

c) Employees: They are interested in getting timely payment of their salary/ wages, bonus, incentives and their retirement benefits which are possible only if funds are managed properly and organization is working in profit.

d) Customers: They are interested in quality products at reasonable rates which is possible only through efficient management of organization including management of funds.

e) Public: Public at large is interested in general public welfare activities under corporate social responsibility and this aspect is possible only when organization earns adequate profit.

f) Government: Govt is interested in timely payment of taxes and other revenues from business world where again efficient finance manager has a definite role to play.

g) Management: Management is interested in overall image building, increase in the market share, optimizing share holders wealth and profit and all these aspect greatly depends upon efficient management of financial resources.

3) Importance to other departments of an organization
A large size company, besides finance dept., has many departments like
a)      Production Dept
b)      Marketing Dept
c)       Personnel Dept
d)      Material/ Inventory Dept


All these departments look for availability of adequate funds so that they could manage their individual responsibilities in an efficient manner. Lot of funds are required in production/manufacturing dept for ongoing / completing the production process as well as maintaining adequate stock to make available goods for the marketing dept for sale. Hence, finance department through efficient management of funds has to ensure that adequate funds are made available to all department and these departments at no stage starve for want of funds. Hence, efficient financial management is of utmost importance to all other department of the organization.

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