Business Financial Management: Definition, Functions, and Methods

In running a business, good and sound financial management is non-negotiable. Bearing in mind, financial conditions are the foundation for a business or company to survive and also scale-up.

If a company does not have a strategy or fundamental financial management that is qualified, not only the financial condition will fall apart. Even the company can lose money, to bankruptcy.

Of course this can be avoided by having a financial manager who is competent in his field. However, there are some basic fundamentals that must be understood by the entire company team in understanding the condition and financial statements of the company.

The Chief Financial Officer (CFO) of Komunal, Kendrick Winoto, has summarized the important things that entrepreneurs need to know about financial management, starting from objectives, functions, principles, to how to do it.

Besides being applicable to managing the finances of small and large scale companies, the fundamentals and principles below also apply to those of you who want to apply them to manage your personal finances. Here’s the complete curation.

Definition of Financial Management

The financial factor is the foundation of a company that must be managed properly from the start. For this reason, every company needs a financial manager who will plan, manage, store, and also control the company’s funds and assets.

Financial Management Objectives

Financial Management Objectives

1. Having Smooth Cash Flow

One of the goals of financial management is to ensure that the company’s cash flow runs smoothly.

Every incoming and outgoing money must be considered so that there are no expenses that exceed the budget or income that is less than it should be, so as not to harm the company.

2. Regularly audit the company’s finances

Of course, in doing business, sometimes there are results that don’t go according to plan, for example, such as project results that don’t match expectations.

For this reason, financial management is needed so that the company routinely audits finances so that it can rearrange its strategy so that the company’s finances remain safe. Companies can also delete a job or project that is detrimental to the company.

3. Have a clear allocation of funds

Every company must be careful when budgeting or allocating funds for a project or company activity.

Fund budgeting can be done by looking at the amount of money needed in a project and calculating whether if this amount is allocated for a project, the remainder is still sufficient for the company’s operations? Avoid budgeting more funds than you should so that the company’s cash flow continues to run normally.

4. Ensuring Financial Security

In addition to seeking profits from the business being carried out, companies can also invest a number of their assets in investment instruments. Where these assets are invested, of course, must be properly monitored by a financial manager so that the company’s money remains safe.

Investing a number of company financial assets in investment instruments is quite common. In addition to the profit factor, the company’s funds will also be stored safely.

5. Preparing the Capital Structure

If the company borrows some money from a bank as business capital, the finance manager is tasked with balancing the budget owned by the funds borrowed by the company.

Balancing this budget is referred to as the capital structure. Of course the capital structure must be carefully prepared before the company makes a financial decision.

6. Utilizing Company Assets

If a company has extra money, this can be used to seek additional profits. You can invest through various instruments so that more money the company can generate profits.

Of course, the selection of this investment instrument should be discussed with the Finance Manager to ensure that the selected instrument is in accordance with the needs and plans of the company going forward.

7. Managing Company Profits

Company profits are not only diverted to operational activities and employee salaries. The profit that the company gets can also be allocated to the company’s emergency fund, a place for innovation and research, to pay tax bills.

8. Ensuring the Availability of Funds

Companies must provide more funds or emergency funds for emergency matters.

For example, if a company’s operational car suddenly breaks down, the company must use an emergency fund to repair the car.

9. Ensuring the Company Keeps Running

Routinely evaluating the company’s finances will keep the company running smoothly.

Make sure financial calculations and management have been carried out carefully and thoroughly. Don’t forget to also provide a plan B so that the company can keep going even if a problem occurs, such as a project that is suddenly canceled.

Financial Management Function

Financial Management Function

1. Planning Company Finances

Make careful financial planning by making company financial allocations. You can start by recording what plans will be carried out in the future and make sure how much funding is needed for each plan.

2. Budgeting Company Finances

Maximizing the use of company funds. Budget company funds into ongoing or ongoing projects, employee salaries and also monthly or annual bills.

3. Controlling Company Finances

Evaluation of company finances every month will keep finances under control. You can improve the company’s financial system if something is less effective or detrimental.

4. Record Company Finances

Every incoming and outgoing cash flow must be recorded in detail. This way, if one day your company experiences financial problems, the root of the problem can be found by looking at the cash flow records.

5. Financial Reporting

Monthly financial reports are a measure of transparency to all company employees. Financial reports also function to provide information about the company’s financial condition, so that other divisions can anticipate problems.

Financial Management Principles

Financial Management Principles

1. Survival

Plan the company’s finances carefully so that the company continues to run well. Companies can do research before taking on a project to determine whether this project will benefit the company or not.

2. Consistency

Implement or create a financial system to minimize future errors. Companies can change their financial systems, but key matters such as managing cash flow and financial reporting must remain consistent.

3. Transparency

Making company financial reports every month for all employees is a form of transparency. Company financial reporting can also avoid conflicts between company employees in the event of a financial problem in the future.

4. Accounting Standards

The financial system used by companies must follow world accounting standards, where all accountants can understand the system. If there is a change in the financial manager, it will not cause confusion and difficulties in understanding the old financial system.

5. Integrity

Financial reports must be prepared accurately and in detail without data manipulation. It can also make financial managers maintain their integrity.

6. Management

The company’s financial management must be done properly, according to plan. If there is a change in the middle of the year, the financial manager can prioritize the original plan before starting with a new plan.

7. Accountability

Through financial management, the acquisition of funds, what they are used for and how the funds are used must be clearly explained so that all parties know exactly how the company’s money is being used.

This is also done to minimize misunderstandings between company members.

How to Manage Company Finances

How to Manage Company Finances

1. Separate Personal and Company Accounts

Separate accounts into personal and company accounts. Having two accounts will keep you from using the company’s money. If you use company money continuously, the company money will run out and make your business collapse.

2. Salary Yourself

Allocate a portion of the company’s money each month as your salary. However, you must be orderly when sending the money to the account.

Make sure what date you will receive the money as salary so that there is no misuse of company money.

3. Create a Budgeting Report

Budgeting reports must be made so that employees know the allocation of company funds. In addition, budgeting reports will make it easier for financial managers to control finances.

4. Create Financial Reports

Financial reports must be made monthly and reported to all employees. Through financial reports, employees can find out the condition of the company.

5. Record Cash Flow

Recording the incoming and outgoing money to the company is very important to know the incoming and outgoing funds in accordance with the budget agreement.

If something bad happens in the future, it can be resolved by finding the location of the problem at its root and usually the location of the problem can be seen in the cash flow records.

6. Check Stock Goods

Do regular stock checks. Make sure the number of goods available and sold is in accordance with the company’s finances.

Routine checking of stock of goods can also avoid incidents such as theft of goods that often occur in companies.

7. Keep Company Money Safe

Make sure the company’s money is kept in the bank safely and not easily accessed by employees. This will minimize the occurrence of misuse of money by employees which will later have a fatal impact on the company.

Managing company finances on a small or large scale is certainly not an easy thing to do, especially because there are a lot of piles of work to be done such as supervising the company’s investment sites.

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