Question

Discuss the following statement:

Summarize 2 key principles for effective financial management that you have learned from this course. Describe the principle and explain why this is important and how it helps a company to remain strong.

Answer 1

Effective Financial Management gives advice on raising money for a business, maintaining investor relationships, accounting, reporting and communicating effectively with a wide range of stakeholders, budgeting, forecasting and managing business costs and cash flow, assessing projects and buying assets.

Financial management in a business means planning and directing the use of the company’s financial resources -- the cash it generates through its operations and the capital obtained from investors or lenders. Although a company may have an accounting staff or an outside accounting firm to provide financial guidance, financial management is one of the most important aspects of the business owner’s job.

A goal of the Financial management function is to make certain the business enterprise always has the resources it needs to meet its financial obligations on time. A cash deficit compared to what the owner forecast can cause serious harm to the company’s image and operations. For example, the company may not be able to fill an important order because it cannot pay for the raw materials needed to make the products. Managing accounts receivable and accounts payable is part of effective cash management. The business owner wants to make certain he is collecting all the funds due the company -- the accounts receivable -- as quickly as he can. Conversely, he seeks to stretch out the time he takes to pay bills from outside vendors. In doing so, he doesn’t want the company to get a reputation for paying so slowly that his suppliers insist on strict terms such as payment upon delivery.