Financial Management is a critical aspect of any business in order to achieve a sustainable and efficient cash flow. It is essential in maintaining the link between a business’s future financial goals (profit maximization) and the resources that it has in order to achieve its objectives. Businesses demand certain common goals that increase a bussiness's all around achievement, Some of which involve; growth amongst assests, An increase in efficiency in all areas of the business whether it be management or not. And the ability to meet short term and long term debts. Finacial management undertakes the responsibility to implement and acheive these goals for the business using a range of strategies shaped to meet the needs of the business and all in all, improve the business.
Each business should have a set list of actions and procedures in order to maintain a profitable cash flow. This is called cash flow management, it invovles the monitoring of cash flowing into the business as well as expenses outflowing, and the use of strategic planning to ensure that the business maintains its liquidity. The Management of cash flow is essential, keeping these records allows for future use and references as well as how much cash/assets you have at any given time. However these records do not show debt owed or what is owed to you by others. Without an effective cash flow, the business would simply increase debt with cash outflows such as interest on loans, Loan repayements, Purchase of assets and operating expenses i.e Rents, wages, raw meterials, and decline in profit and cash inflow. We see the use of these management strategies intertwined with the business 'Crumpler' ,a successful business that specialise in carry bags for all types of use. Crumpler have improved their very own cash flow statement with the use of discounts which are offered to International Distributers for payments made in advance as well as larger orders. Crumpler also recieve similar offers from their supplies. This allows the financial manager to negotiate better deals that benefit crumplers financial position and improve their cash flow.
Another tool used by management is a budget, this allows a financial manager to evaluate performance and critically analyse specific areas of the business's financial needs i.e control of stock, price setting, financial requirements, control of expenses and production costs. There are three types of budgets available for use; An operating budget relates to the main activities of a business and may include budgets relating to sales, production, raw materials, direct labour, expenses and cost of goods sold. This information is recorded and used for the preparation of budgeted financial statements. Another budget used to monitor capital expenditure and research and developement is know as a Project budget. This information is included in the budgeted financial statements. Finally the last type of budget is called a Financial budget.
Cash flow statement
A cash flow statement is one of the key financial reports that are part of effective financial planning. It provides the link between the income statement and balance sheet, as it gives important information regarding a firm's ability to pay its debt on time. The cash flow statement indicates the movement of receipts and payements resulting from transactions over a perod of time. It can also identify trends and can be a useful predictor of change. These reports are essential for any business and play a high role of importance, Showing firms/business's whether they can; generate a favourable cash flow (inflow exceeds outflow), pay financial debts and committments as they fall due i.e(interest on on borrowings, repayment of borrings, accounts payable). And whether they have sufficient funds for future expansion or change.
There are several management strategies in which a business can implement to increase a business's performance to...
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