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Importance of money management in business

Importance of money management in business - Financial management is one of the important factors in determining the success of a business. Given that finances are a vital issue, the details of the outflow and inflow of funds must of course be clear. Profit is a common goal for every company.

Importance of money management in business

Therefore, it is important to know how to do good financial management including managing costs, budgets, and revenues. The role of financial reports is very crucial so that financial management becomes more organized. If you manage your finances well, the company's cash flow will be healthy.

On the other hand, if money cannot be managed carefully, expenses and income will not be controlled, and can lead to bankruptcy. For those who want to do business, learning about good financial management is sometimes forgotten. Though this is important when the business is running.

What is the importance of money management in business?

The importance of money management in business is the activity of organizing, planning, directing, and supervising financial activities, such as expenses for the purchase of equipment, or income from product sales.

Financial management seems trivial to some business people, because this term itself is still rarely understood by people. Not only useful in the business world, financial management can also be applied in everyday life.

If previously financial management only revolved around the efficient use and allocation of funds, now financial management also covers a wider area. This can be seen from its scope which includes how to obtain funds, use of funds, asset management, to investment.

Read also : Why is money management important

Why is Financial Management in Business Important?

There are a myriad of benefits for you if you apply good financial management. Here are some of them:

Knowing the Capital That Has Been Issued - By practicing good financial management, it will allow you to know the exact amount of funds spent on asset purchases. Assets here mean capital that can later generate income.

In spending funds for capital expenditures, you need to balance the amount of income that will be generated by the capital. This needs to be done in order to avoid bankruptcy.

If you can manage your expenses well, your financial flow will be healthier so you don't have to borrow from other parties. You can also focus on assets that can provide more income for the company.

Can Manage Cash - By having good financial management, cash flow can be managed more regularly. You also don't have to worry about having funds to pay bills such as electricity, water, telephone, employee salaries, to insurance.

One useful tip you can do is shorten the time you give the customer to pay or negotiate a due date with the vendor. You need discipline in financial management. The reason is, if you do not manage cash flow effectively, you can default and the company's operations will be disrupted.

Low cost - One of the main tasks of having financial management is to keep costs as low as possible. There are several things that can be done, such as asking vendors to lower prices due to long subscriptions, reducing electricity and water usage, or buying goods in bulk.

If you can't manage expenses well, another thing you can do is be able to significantly boost sales figures so that expenses can be patched.

Tax Planning - Another thing that can be done by having financial management is tax planning. With financial management, you can estimate the estimated amount of tax that must be issued. You can rest easy because you already have a separate post for taxes, so you don't have to worry about being late paying taxes.

As is known, late paying taxes will be subject to a fine so that additional funds are needed to pay the fine. Since you already have financial management, your corporate tax planning will run smoothly.

Scope of Business Financial Management

Basically there are two general ways to understand the concept of financial management, namely the modern approach and the approach. The conventional approach means understanding the principles of financial management as a system that revolves around money management.

While the modern approach views financial management as a broader system, which affects three strategic decisions, namely investment, dividends, and of course finance. These three aspects of the modern approach are the space for management. Here's a detailed explanation:

Financial Decisions - Financial decisions are related to the management and improvement of finances sourced from various types of capital. That decision affects how companies raise capital, and then how they value it.

In financial decisions, there are two periods, namely long term (capital structure) and short term (working capital). Long term relates to funds used for business operations. While working capital is related to the availability of funds, capital structure is related to sources of capital (internal and external).

Investment decisions - Investment decisions are concerned with how the company uses existing assets to achieve targets. Almost similar to aspects of financial decisions, investment decisions have long-term and short-term types.

Long-term related to fixed assets or fixed assets, while short-term decisions have a direct influence on the company's liquidity through fixed assets.

Dividend Decisions - The scope of dividend decisions includes the distribution of profits to each shareholder of the company. In addition, dividend decisions are also related to the proportion of funds deposited for business purposes or company expansion.

Financial Management Functions - After knowing the scope, it can be said that management has the following functions:

Decision Basis, Financial Planning and Control - Financial management has basic functions for financial decisions, planning, and control. This is done so that the company is able to achieve its goals more effectively and efficiently.

In general, company officials will use several ways in conducting financial management such as forecasting, financial ratio analysis, profit and loss analysis, and others.

About Assets - By having financial management, companies can manage their assets to provide value for profit. That way, the company can be better maintained both in the short and long term.

Manage Capital - Financial management also functions for the company's capital needs, both short term and long term. In addition, financial management keeps track of how much capital is needed and where it comes from.

Manage Surplus - As is well known, surplus must also be managed properly so that the company can progress and develop, or take steps and expansion. There are basically a number of options for managing the surplus. Some use it as dividends, sell surplus assets, and invest productively.

Manage Cash Flow - Financial management can also help your company to simplify some of the elements that affect cash flow, such as installments or debt.

Predicting Risk - With financial management, you can also at least predict the potential risks that may occur in the future. This risk can come from outside the financial side.

Financial Management Principles - Financial management also has several principles that need to be consistently adhered to. Even in dynamic company or market conditions, these principles need to be maintained. Here's the explanation:

Consistency Principle - In conducting financial management, a company needs to carry out this process consistently and not change even though the conditions are uncertain.

Principles of Accountability - With financial management, you can get an overview from the legal and moral side of the use of funds or authority to manage finances. In financial management, the company and the people in it must be responsible for everything that can happen.

Transparency Principle - Companies must be very transparent in providing information on financial management activities to each member of the company. It exists with other principles in financial management.

Going concern principle - For company management, they must provide a comprehensive picture of the company's financial health. The picture covers the present and the future so that the company continues to run well.

Integrity Principle - Every individual who performs financial management must be able to work optimally. This can be easily proven, namely through the results of accurate and accountable financial reports.

Tips in Financial Management

In managing finances, you should not do it, especially if it has something to do with the company. In order for financial management to run well, here are tips that you can practice:

Create Separate Accounts - Having one account for two different purposes is not recommended. Therefore, you must separate your personal account from the company account. The goal is clear, namely to make it easier to measure the company's financial condition and overcome these problems.

Make Financial Reports Regularly - Making financial reports on a regular basis is very important to know the company's financial condition. Financial reports also serve as a measuring tool in tracking incoming and outgoing funds.

Financial reports are part of the principle of financial management, namely the principle of transparency. This means that whatever the company's financial conditions and activities, it must be recorded very accurately and accountably.

Keep a Record of Cash Flow Projections - The purpose of a cash flow forecast record is to know when company funds are issued and when they should be received. In addition, the record serves as a solution seeker before the company's financial losses.

If you do not have a cash flow statement record, you can predict the company's financial condition. As a result, you can be late in taking a solution step and bankruptcy can occur.

Conclusion :

Those are the important things you need to know about financial management. From the information above, of course you can understand the importance of having financial management for a business. Not only so that the business can grow, but also to maintain your business.

In running a business, of course, you definitely need a variety of tips and information to support various things that are important in business. Everything you can get with Kuncie who will help you learn from experienced business people anywhere and anytime.

You can choose from a variety of business classes to suit your needs, besides that you can also plan the right lessons, get exclusive private mentoring sessions, and get to know other business owners.