Managing Financial Resources within the Organization
Category : Financial Risk Management
Managing Financial Resources within the Organization
“Money makes the world go around”. Every business endeavor or venture is constantly faced with financial management problems to which the owner or manager should be able to attend to in order to take the business to success. Key financial decisions normally confronts the managers in issues and problems that concerns financial investments they usually provide answer to the problems regarding the assets on which the company of firm needs to put money and how a chosen investment should be financed.
The investment and financial decisions that should be made in a particular business organization or firm fall under the responsibility of the financial manager who is expected to have the financial skills and knowledge to manage financial problems and make financial decision-making process result to positive output. Any commercial, entrepreneurial, private as well as public organizations and institutions who has a financial arm to manage the funds of the group, is faced with the objective of maximizing the shareholder wealth and not the profit as was stated in the theory of financial management. It is the primary duty of the financial manager to ensure that the investment and decision-making processes are soundly based and that the outcomes will result in an increase in the long-term value of the firm whether it is a case of long-term or short-term plans and strategies of the organization.
The dramatic changes and advances in communications and information technology facilitated the way towards a sustained progress in the international business and finance environment. The low cost and the efficiency as well as the attractiveness of conducting and entering an international business venture were made available by these technological advances which characterize the global marketplace. Today, greater challenges are faced by financial managers as opportunities for growth as well as possibilities of risks increase in the current and more attractive business world.
Financial Management Defined
As the nature of financial management become more and more complex in this information and efficient communication era of international business, finance managers face a wide array of challenges, opportunities and options for him or her to enhance the investing and financing activities of the firm as well as the inherent risks and circumstances of the decisions that will be made. The challenge now for the financial manger is to explore the options and take advantage of the opportunities while taking caution in managing the risks.
Financial management was defined by (1999) as the determination, acquisition, allocation and utilization of financial resources with the aim of achieving a particular goal. It consist of analyzing the financial situations, making financial decisions, setting financial objectives, formulating financial plans and providing a system of effective financial control to ensure the progress of the plans towards the attainment of the company aims and objectives. All these are supervised by the financial manager in the process of financial management.
The business, in order to effectively execute any business strategy or plan, should be able to determine first and identify the resources that are available in the company. Studying and examining the opportunities of the available resources will help in constructing a business plan which will be profitable. The characteristics of the business should be clearly laid out and the ideas that will be made available should be thoroughly researched. This will provide relevant information that the general management can utilize so as to be able to allocate the funds of the company in the most effective way. If the company knows the nature of the business, the further steps in formulating strategic business plan will be easier.
After knowing the available resources of the company which it can utilize in order to accomplish a specific or target business output, selecting the most promising resource in which the company may invest and take advantage of will be the next priority of the whole business enterprise. The financial manager who has the responsibility to designate the amount of money which will be allocated in every decision or move that the company will take the action needed as well as examine the decision made so that there will be no loopholes in the near future. But still it should be kept in mind that will be issues and problems will still arise even if proper precautions and studies are made.
The allocation of funds will determine the amount of money which will be invested. This part is considered to be the most critical since the company will be letting out money from the company. The money may not necessarily come from the profit already made by the company. The owners or shareholders may also use their own money and not the money they invested in the business itself. There is also a possibility that money will not be invested. The business organization can actually utilize and literally make use of the resources that are already available in the company. This can be applied to the human resources of the company. If they have the people who can make the goals and objectives of the business attainable, they can take advantage of such opportunity by merely compensating on the efforts, knowledge and skills of the staff and employees. It could also be a case in which the company will be investing on its people through workplace training and programs that will be made available to the employees. There are companies who enroll their staff in training courses as well as make them attend conferences from which they can learn new ideas that could be utilized for the benefit of the company.
All these procedures aim to achieve the goals and objectives of the business organization or company. That is why it is highly important that the firm knows the direction it intends to take. The people especially the finance manager should have the expertise, experience and skills to analyze the financial situation of the business to be able to make sound decisions that will either take the business establishment to the peak of its success or to the lowest grounds of its failure. Making a financial decision and taking a stand to support the possibility of exploring the strength and advantages of a particular resource of the company will be handy if the organization has financial personnel who is decisive and practical enough with a daring character to challenge and the social and economic conditions in the business enterprise to take the company to achievement.
All the plans will be put to waste if the company has no effective system of financial control that will monitor the investment that the company made. There should be constant and regular reports regarding the progress of the investment made. If outputs are expected, there should be immediate application of the advantages that the company gained. The results of the investment whether it is profit or performance-related advantages should be duly reported for evaluation and assessment. This will provide the black and white transparency which the company can take hold of as guide in the future investment and business plans and strategies that its people will employ. The investing strategies will be likewise assessed and evaluated as well as the capacity and the ability of the people who made the project and the attainment of the plans possible.
In monitoring the investment made, it should be taken into account the factor or variable of time. Since the business organization has the options of investing, planning and strategizing long-term and a short-term projects, the nature of the investment in relation to the needed time for the initial execution should be given great consideration, there are just times when the business firm is not in the position to control the flow as well as the circumstances of the investment made. Sometimes the best thing to do is to wait. When the time comes that is but right to take further action, the company may do so.
The Unifying Model of Financial Management
All business firms are composed of different departments which enable the organization to operate accordingly to attain its short-term and long-term objectives. And like the human resource and marketing managements, the financial management can not be separated to the whole organization as a single operating body. It is always important for the financial manager to know the ways, plans, and objectives of the business firm in order to allocate the funds and other resources of the company so as to conjure the coherent and best strategy that the company will take to ensure the success of the business establishment.
In the unifying model of financial management, emphasis on the link between an organization’s financial arm and the general management process was made. Like in other management disciplines, financial management does not exist in isolation and is affected by the key changes and trends that the general management faces (1999). This model fall under the functional approach which claims that the whole is composed of many interrelated components that operates in order for the whole to function. This means that the greater the number of parts that compose the whole, the more complex is the said system.
In the social and technological advancements that the international business industry brave, communication and logical analysis of the business within the organization should always be observed keenly to avoid lapses and failures in attending to the commitments of the venture. The management in general should take into great consideration the smooth relationship and coordination between and among each and every department that make up the whole business enterprise. Aside from the proper communication that the workplace should maintain there should also be good interpersonal relationship between the employees as well as among the supervisors and their subordinates.
Formulating the Business Objectives and Financial Strategies
Putting up a business whether the case is that of a small enterprise or a large and corporate company, consist of planning and setting of goals that are feasible and attainable after the specified time has been decided by the concerned business individuals. This will ensure that the business has the direction and the concrete vision of the future of such business endeavor.
Nowadays, the trend is for businesses to enter the world market in which larger target market is available and growth is assured given that the general management has the capacity to launch such plan and come up with strategic business procedures and tactics in dealing and transacting with other business individuals in the global market. International representation as a business strategy and significant business objective and plan has been the current inclination of most of the daring and competitive business-minded individuals. Big business industries compete painstakingly with other brands in order to increase the value of the products or service they are offering to the prospect consumers and clients. Challenging the strong brands by joining in the international competition will generate high margins and substantial cash flows. All this will be possible if the product manufacturer or the service provider has the capacity to grow the volume and market share of the product or service, its presentation and packaging and the market routes and distribution through inventive and creative innovation. There should be development in the different aspects of running the business including the individual personnel and staff employed by the organization through value enhancing acquisitions. The whole business establishment should create an increasingly energized organization.
In formulating the financial strategies and in making the financial management effective, proper research and studies should be made in order to define and maneuver the direction of the whole business plan. Setting up the ideas and presenting them to the figures of authority for a rich exchange of views will be helpful in generating plans that will be best for the business establishment. The company should be conscious and cautious in terms of the savings and the transparency of the expenditures. The people involved should also have the guts and the character to make the long-term plans a success by initiating efforts that will make such conjured ideas possible and tangible in the future. Investing money on banks is not a good idea since economic inflation is unpredictable and a lot more risky as well as time consuming. Specifying the date and time frame of executing the business plans and strategies that will make its attainment possible will push and business to start right on and take the challenge. As much as possible, hesitations should not be acknowledge unless there are enough reasons to postpone the initial execution of the plans that will be more risky than the imagined drawbacks of the project. They should be sensitive in making delays and lagging off from the defined plan and tactics as well as in the changes and differences of the actual application and that of the plan.
It would also be advisable to get help and consult from a professional finance consultant because they can provide information and views that were not pointed out and brought up during the planning period. There should also be an account to serve as a financial back up for the emergencies and difficulties that were not foreseen while coming up with the plans.
(1994) introduced the most common mistakes that are encountered in managing the finance of a business organization. These include the failure to research and conduct studies regarding the goals prior or after the planning period, not using an automatic saving plan, being too conservative with long-term investments, the problem of succession, putting off the start of the investment, not getting professional advice, and not setting aside at least three to six months worth of savings in an interest-bearing account.
In managing the financial resources of a business organization, it is of primary importance that the resources of the company are identified. From these resources the people in the general management especially the financial manager to be selective in choosing the resource or resources that the company will invest in. the nature of the resource should be studied so that the opportunities that it offers can be fully exhausted by the company.
Strategic planning could be only successful if the circumstances of the investment that will be made are well examined and researched. This will prepare the whole business in the problems and issues that the company may confront during the execution of the project or plan. However, this does not assure that there will be no problems that will exist and confront the business venture.
The financial management cannot be put in isolation from the whole organization. The budget and all the investment possibilities that the company can venture in all depend on its financial capacity which will make the operations of the business possible. Coordination between and among the department within the organization as well as among all the staff and employees should be fostered in the workplace for the immediate success of the business endeavor.