As college students, many of us were mindful of the money we spent and some continue to be so later in life as well. Whether it’s through expenditure tracking mobile applications or spreadsheets, maintaining records of financial resources improves our financial well-being. It not only helps us spend wisely but also plan better for the future.
In the world of work, corporations prioritize financial well-being through proper resource allocation and expenditure plans. Let’s see what the primary goal of financial management is in an organization and the various objectives of financial function.
What Are The Objectives Of Financial Function?
Before we explore the financial management objectives in detail, let’s understand its meaning. Financial management involves planning, organizing, directing and controlling financial activities in an organization. It’s the lifeline of any business, irrespective of the business model and industry. However, like any other resources, finances are limited. Therefore, businesses need to manage them effectively.
The primary goal of financial management is to manage an organization’s finances so that businesses are compliant with necessary regulations and are successful in their field. The process involves high-level planning and proper execution. When done right, businesses succeed and improve profitability. This is also the reason why the finance department, along with finance or revenue managers, plays a critical role in any organization. They ensure the basic objective of financial management is met by:
- Making important decisions through profit and loss analysis, financial forecasting and ratio analysis, among others
- Utilizing available resources and ensuring that they fulfill an organization’s needs and priorities
- Ensuring that an organization makes decisions after thorough consideration of available funds and potential risks in the future
In short, fiscal or financial managers shoulder the responsibility of ensuring that an organization’s decisions are aligned with the overall financial management objectives.
What Are The Primary Objectives Of Financial Management?
Financial managers need to determine financial management objectives for efficient procurement, use of resources and minimizing costs. Here are the most important financial management objectives that businesses across industries need to prioritize:
1. Profit Maximization
The basic objective of financial management is to achieve optimal profit, both in the short and long run. It even includes wealth maximization, where every shareholder’s value or hold over dividends should increase. These outcomes are related to business performance, which means that the better a business performs, the higher its market value of its shares will be.
2. Proper Mobilization
Effective mobilization is one of the most important objectives of financial function. It means that managers need to make decisions regarding the allocation and utilization of various funds. Whether it’s shares or debentures, finance managers need to estimate an organization’s requirements and make financial decisions accordingly.
3. Improved Efficiency
Proper utilization of finance also encourages proper distribution. From creating inventories to investing in profitable businesses, mobilization and utilization of finances lead to better business decisions. This also allows managers to dedicate resources and distribute them among departments, increasing the overall efficiency of an organization.
4. Business Survival
The primary goal of financial management is ensuring an organization’s survival. As the term suggests, businesses need to survive the competitive market and the best way to do so is to manage their financial resources. Managers need to make big decisions after due diligence. They may consult with external members or agencies if needed. Every decision makes a difference as it impacts the business.
5. Balanced Structure
As financial managers prepare capital structure, it creates balance among different sources of capital. This balance is essential for liquidity, flexibility and stability. This further decides the ratio between owned capital and borrowed capital.
In short, the basic objective of financial management is to create financial discipline and improve the financial well-being of an organization. These objectives guide financial managers in determining how much to invest and how much to retain, among other functions. It includes various management decisions that address short-term and long-term needs, ensuring availability of funds when needed and how funds should be distributed.
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