Finances are the main pillar of any company, as they support the success or failure of the business. To give an idea of its importance, only 8 out of 10 Small and Medium Enterprises are less than two years old. According to the Center for the Development of Business Competitiveness, and do you know what the reason is? of this dreaded statistic? Just poor financial management.
Finance of your company is increasingly important, so it is necessary that it has the appropriate characteristics for financial administration. Since decision making depends on this area, through the analysis of data from every part of your business.
And what features are we talking about? The work team dedicated to financial management has the power to make decisions from the marketing area to your sales team, since they must know the strategy and context of each area, to provide the best option and the best impact. Decisions must be effective and agile, so the financial management team must be able to provide financial data. And also, its employees and operations, and generate analyzes and reports of the different processes.
To clarify this process, imagine a company like the human body. You are his provider because you feed him. Your body’s job is to extract nutrients and calories (energy) from those foods to keep you active every day. Something like that happens with a company. It needs good management and resources to operate effectively and efficiently, and thus deliver the expected results in any situation.
Financial Management: Definition
The financial management refers to a department that is responsible for planning, organizing and managing the financial life of a company.
In a nutshell, it decides what is to be done with an organization’s money, how it is to be invested or spent and when, as well as how much is needed to make more money or grow the business.
Let’s say a coffee shop has only been open for a short time and you need to know how it will use its profits for the month.
As you have just started in the market, you will have to define what percentage would be appropriate to invest in advertising.
And also, how many supplies you will need and save. another percentage to grow the business in the future, for example.
Financial Administration Management
It would be the financial administration person who is in charge of defining all this based on the business objectives. According to finance guru, first has to allocate a percentage to pay debts (for financing or rent, for example).
Then another percentage is defined to an emergency fund. The company has to have a “small store” for contingencies or bad commercial streaks. This designated amount should go toward at least half a year’s worth of expenses.
Then, an amount goes to “insurance”, the money that you have to give in the long term to maintain the company.
Then two types of investments can be made: active ones that mean returning money to the business to make it grow. And also, liabilities that are the stock market, real estate, etc.
According to the financial manager is also in charge of obtaining financing sources and fulfilling the obligations established for them. Continuing with the example of the cafeteria, imagine that it could have obtained financing from the government. And also, financial management area will have to comply with the aspects established by its investor.