As college students, many of us had in mind the money we spent, and some did later. Whether it’s spending tracking mobile application or a spreadsheet, keeping a record of your financial resources improves your financial well-being. It not only helps us spend wisely, but it also helps us plan better for the future.
In the world of work, businesses prioritize financial well-being through proper resource allocation and spending planning. Let’s see what the main goals of financial management are in the organization and what are the various goals of the financial function.
What is the purpose of the finance function?
Before we take a closer look at financial management goals, let’s understand what they mean. Financial management includes planning, organizing, directing, and controlling an organization’s financial activities. It is the lifeblood of any business, regardless of business model and industry. However, like any other resource, finances are limited. So businesses need to manage it effectively.
The main goal of financial management is to manage an organization’s finances so that the company can comply with the necessary regulations and succeed in its field. This process involves high-level planning and proper execution. When done right, your business will succeed and your profitability will increase. This is also why the finance department, along with the finance or profit manager, plays an important role in any organization. Ensure that the primary goals of financial management are met by:
Critical decision making through profit and loss analysis, financial forecasting and ratio analysis, and more
Make sure you utilize available resources and meet your organization’s needs and priorities
Enables organizations to make decisions after thorough consideration of available funds and potential future risks.
In short, like a finance or financial manager, you are responsible for ensuring that your organization’s decisions are consistent with your overall financial management goals.
What are the main goals of financial management?
Financial managers must determine financial management goals for efficient procurement, resource use, and cost minimization. Across industries, the most important financial management goals companies should prioritize are:
1. Profit maximization
The primary goal of financial management is to achieve optimal returns in the short and long term. This also includes the maximization of wealth for which the value of all shareholders or withholding dividends must increase. These results are related to business performance. In other words, the better the business performs, the higher the market value of the stock.
2. Proper Mobilization
Effective mobilization is one of the most important goals of the financial function. This means that managers must make decisions about the allocation and utilization of various funds. Whether in stocks or debentures, the financial manager must estimate the needs of the organization and make financial decisions accordingly.
3. Increase efficiency
Proper use of finances also encourages proper distribution. From creating inventory to investing in profitable businesses, mobilizing and leveraging your finances can help you make better business decisions. It also allows managers to allocate and distribute resources across departments to increase the overall effectiveness of the organization.
4. Business Survival
The main goal of financial management is to ensure the survival of the organization. As the term suggests, businesses need to survive in a competitive market and the best way to do this is to manage their financial resources. Managers have to make big decisions after due diligence. If necessary, we may negotiate with external members or organizations. Every decision makes a difference because it affects the business.
5. Balanced structure
As financial managers prepare their capital structures, a balance is created between the various sources of capital. This balance is essential for liquidity, flexibility, and stability. It also determines the ratio between owned and borrowed capital.
In short, the primary goal of financial management is to create financial discipline and improve the financial well-being of an organization. These goals guide financial managers to decide how much to invest and how much to keep, among other functions. It includes a variety of management decisions that address short- and long-term needs to ensure funds are available when needed and how they are distributed.
If you’re a financial manager and want to make smart financial decisions for the benefit of your organization, try Harappa’s Decision Making Course for problem-solving and decision-making skills. In addition to the principles of good decision-making, you will learn how to identify issues that influence decision-making.