Top 15 Objectives of Financial Management

The objectives of financial management concern the financial well-being of any business to financially sustain while generating profits. This article explains the various objectives of financial management in detail. We will also discuss why every business needs this skill.

Table of Contents

• What is financial management?
• Importance of financial management
• Objectives of Financial Management
  • Regulation compliant
  • Profit Maximization
  • Fund mobolitzation
  • Capital assessment
  • Policy formulation
  • Liquidity within the company
  • Building capital structure
  • Resource utilization
  • Contingency plan
  • Identifying suitable investments
  • Allocation of funds
  • Risk Management
  • Decision-Making
  • Business Survival
  • Optimization of Marketing Activities

What is financial management?

Financial management is the application of the management principles to financial resources for efficient management. It helps in planning, directing, organizing, and controlling financial activities in business. Comprehensively, financial management ensures businesses optimize their funds since they are limited.

Importance of Financial Management

Financial management is an important skill for the sustenance of every business. Through financial management, one can achieve the following:

• Prevent financial crises in case of emergencies with the building of reserves of finance.
• Increase the company’s revenue through cost assessment, investment and business-related decisions.
• Helps in running business operations smoothly without any shortage of funds. 

Objectives of Financial Management

While we have already discussed the definition of financial management, we will now discuss financial management’s objectives.

1. Compliant with Regulations

One of the important objectives of financial management is to ensure that the business becomes compliant with regulations. This ensures that the business can operate without any legal issues. Other compliances will ensure that the business is properly operational and does not have any loopholes. It helps in building trust among customers.

2. Profit Maximization

Another important objective of financial management for any business is maximizing profit. Funds are managed in a way so that earnings per share (EPS) or profits are maximized for the maximum results. To achieve this objective, such activities should be undertaken that help in increasing profits. Those actions that decrease profits are avoided. The operational concept of profitability is applied, which aims at profit maximization.

3. Fund Mobilization

Proper mobilization refers to the effective gathering and allocation of funds within a business. It includes sourcing capital in an optimized manner and deploying these resources effectively towards projects. It is meant to ensure that an organization has enough funds to meet requirements such as maintaining operations, investing in new projects and maintaining operations. Overall, the aim is to maintain the financial health of the business while ensuring its sustainability,

4. Capital Assessment

Another objective of financial management is cost and capital evaluation. This includes the evaluation of fixed assets and current assets, marketing costs, buffer capital, etc. Cost of capital represents the minimum acceptable rate of recoverability of investment projects while considering account risk and uncertainty.

5. Formulation of Policies

Through financial management, companies work at formulating policies to smoothly run the business. This includes framing policies that govern the lending and borrowing process as well as cash control.

6. Liquidity within the company

Financial management aims to monitor the liquidity within the company. For this, management of cash flow is also performed. This ensures that there is neither an underflow nor an overflow of cash within the organization. A regulated cash flow ensures that the business is financially stable with sufficient liquidity for the business to operate.

7. Building capital structure

To maintain a balance among different sources of capital, it is important to build a capital structure. It is the combination of equity and debt financing that companies use for financing their operations. This structure determines business-related financial decisions such as the short-term and long-term debt-equity ratio. 

8. Utilization of resources

One of the crucial objectives of financial management is the optimization of financial resources. Experts devise methodologies to optimize these resources while minimizing their wastage. Finance managers manage funds such as debentures, bonds, and shares. Based on financial requirements, the finance manager allocates funds to these sources to reap the maximum benefit.

9. Contingency Plan

Through financial management, organizations can survive even in critical financial crises. Experts work on building contingency plan that estimates risks associated with the future. After the assessment and analysis, they build a contingency plan to combat financial crises. The company can create financial reserves by planning an optimal dividend payout policy. They can also save their profits in reserves for emergency situations. 

10. Identifying Profitable Investments

Financial management also aims at identifying investments that are suitable for the company’s business model. Based on proper market study, financial experts identify and suggest opportunities where companies can start investing to reap the maximum ROI.

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11. Allocation of Funds

Another objective of financial management is fund allocation. Financial managers wisely allocate funds to various business activities and operations. This ensures that each operation is sufficiently funded for the foreseeable future. For the proper allocation of funds, managers perform analysis and go through financial statements and historical records of the company. 

12. Risk Management

For any organization’s healthy survival and smooth business operations, it is important to assess risk. Through risk management, businesses can identify, and contain the threats to their capital, profits, and revenue since any unforeseen event can crumple an organization’s financial situation. To avoid such unfortunate situations, organizations must use resources for minimizing, monitoring, and controlling the impact of negative events. This is why a systematic and integrated approach to risk management is important. 

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13. Decision Making

One of the objectives of financial management is decision-making. For this several steps are undertaken including building different financial scenarios and identifying potential financial risks that may hamper the final business. Say, a financial condition has arisen where there has been an increase in the interest rate that may impact your debt structure. Another scenario may arise where there are positive opportunities that may occur from economic changes objective.

14. Business Survival

Business survival is an important objective of financial management that focuses on keeping a company operating through difficult times rather than pursuing growth or high profits. This objective is important when businesses face challenging conditions like economic downturns, new competition, or unexpected problems. For a business to survive, it must generate enough money to cover basic operating costs including rent, wages, and supplies, while maintaining sufficient cash flow to pay bills and debts on time. Companies focusing on survival typically take practical steps such as reducing non-essential expenses, concentrating on their most profitable core products or services, and carefully managing their cash. They also work to maintain good relationships with key suppliers and customers while keeping essential staff employed. 

15. Marketing Activities Optimization

Optimizing marketing activities as a financial management objective focuses on getting the best possible results from marketing spending while keeping costs under control. This means carefully tracking how much money goes into marketing and measuring what the business gets back from these investments. Companies achieve this by analyzing data from their marketing campaigns to see which ones bring in the most customers and sales for the money spent. They might look at metrics like cost per customer acquired, return on ad spending, and conversion rates from different marketing channels.

Conclusion

We hope that you have been able to understand the objectives of financial management. If organizations effectively do it, their business can flourish while making a profit. Organizations would also be able to have financial reserves in case of unfortunate emergencies that may harm their reputation. Overall, the financial situation of the company will be far better without fulfilling these objectives.