Basic Concepts of Financial Management


Financial management in the company is a major key to the company's operational activities and won't regardless of financial-related activities of the company. When uncontrolled funds usage will result in an empty treasury.

Corporate finance the empty causes disruption of all operational activities of the company. Management over the current exit-entry of a controlled company funds will demonstrate good corporate credibility in the business world. In a poor financial condition, management is required to immediately restructure the finances of the company.

Financial management discusses financial theory which basically can be done either by individuals. Financial theory explains why a phenomenon in finance could happen, and why financial decisions need to be taken in dealing with financial matters.

Management itself as a process of planning, organizing, coordinating, and controlling resources to achieve the goals effectively and efficiently. Effective means that the objective can be achieved in accordance with the planning, while efficiently means that the existing task done correctly, organized, and according to schedule.

Understanding of financial theory would make it easier for us to understand the various financial problems which may confront us in the life of a day today. A financial manager should be able to understand the basic fundamentals of financial management. Therefore, it is very important for a Manager in the know about the basic concepts of financial management.

Basic Concepts of Financial Management

Definition of Financial Management
Definition of financial management according to Bamabang Riyanto is a whole company's activity related to the effort of getting the necessary funds with minimal costs and terms that are most favorable and their attempt to use those funds as efficiently as possible.

Definition of financial management according to Liefman is an attempt to provide money and used the money to gain or acquire assets.

So, financial management is the activity of planning, budgeting, management, inspection, control, search and retention of funds owned by an organization or company.

The Principle of Financial Management
In practice, the financial management is the action taken in order to maintain the financial health of the organization. To that end, in building good financial management systems required identifying the principles of good financial management.

As for the 7 principles of financial management to be aware of:

1. Consistency
Financial systems and policies of the Organization should be consistent over time. This does not mean that the financial system should not be adjusted when there is a change in the organization. Inconsistent approach toward financial management is a sign that there is manipulation in the financial management.

2. Accountability
Accountability is a legal or moral obligation inherent in the individual, group, or organization to explain how the funds, equipment, or authority given third parties have been used. Organizations must be able to explain how he is using its resources and what he has accomplished as accountability to stakeholders and beneficiaries. All stakeholders are entitled to know how the fund and the authority are used.

3. Transparency
The organization must be open with their work, providing information related to the plan and its activities to its stakeholders. it includes preparing financial reports are accurate, complete, and timely and can be easily accessed by the stakeholders and beneficiaries. If the organization is not transparent, it does indicate there was something hides.

4. The Viability
In order to finance the organization's expenditure on waking, at the level of strategic as well as operational activities should be in line with the funds appropriated / received. Viability is a measure of the level of security and the financial sustainability of the organization. Manager organization must prepare a financial plan that shows how organizations can implement the plan his strategy and meet the needs of financially comfortable.

5. Integrity
In carrying out its operational activities, the individual involved must have integrity. In addition, reports and financial records should also be maintained through the integrity and accuracy of completeness of the financial record-keeping.

6. Management
The organization must be able to manage well the funds that have been obtained and ensure that these funds are used to achieve the objectives that have been set. In practice, organizations can do well financial management through strategic planning, careful in identifying financial risk, and make the financial systems and control system that comply with your organization.

7. Accounting Standards
Accounting and financial system used must comply with the organization's principles and accounting standards applicable in General. This means that every accountant around the world can understand the Organization's systems are used.

The Importance of Financial Management for an Enterprise
Financial management includes not only surrounding the recording of accounting. He is an important part of the management of the program and should not be viewed as a separate activity that is part of the job of financial people. Financial management is more of maintenance of a vehicle, when we don't give him the fuel and oil are nice as well as the service regularly, then the vehicle will not function properly and efficiently. Worse yet, the vehicle can be damaged in the middle of the road and fail to achieve the goals set.

So, financial management is the activity of the owners and management of the company to acquire a source of capital that is assembled-cheapness with the use as effectively as, as efficient, as, and as productive as possible to generate profit.

The Main Activities of Financial Management
There are 3 main activities in the management of financial, namely:

1. Get Fund Companies
There are two main sources of funding of the efforts, namely equities and debt. The equity that is the owner of his company's profits to investing is placed in the company in order to minimize the risk of returns in the low levels, whereas debt is a risk, lenders first interesting profit and have to be paid even though the company no profit or loss-making conditions.

Both sources of funding are as follows:
  • Equity funding (private equity).
  • Funding of debt (loans).

Using the Company's Funds
Use of funds is a report drawn up on the basis of changes in the two balance sheets for the two times. The report describes the chances from each of the elements that reflect the existence of the source or the use of the funds.

Dividing the Gain / Profit Company
Financial management tasks that last one is share the profits of company. In accordance with section entities each member organization.

Read Also:

Related Posts
Disqus Comments