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Financial Management’s Role In The Business World

Financial management’s role in the business world is of extreme importance due to its implications on the business’s profitability and survival. We all know the importance of money and that without managing funds carefully a business is likely to end up bankrupt.

Perhaps the single biggest motivator for businessmen and entrepreneurs is profit. After all, money makes the world go round and rightly so. Therefore the importance of financial management’s role in the business world can be seen in the drive to earn profits.

Financial management’s role in the business world can be further understood once the meaning and significance of financial management can be explained. In lay mans term, it is the efficient allocation of scarce business resources in various operating, financing and investing areas to create a positive cash flow for the business.

Every business has assets which are basically seen as cash generating bodies. These assets can further be divided into current and fixed assets that serve different strategic purposes for the business. Examples of assets are cash, accounts receivable, finished goods, land, equipment, offices, plants, and so on.

Financial management ensures that a business has funds available to meet deadlines, satisfy liabilities, and pay its suppliers. A business needs to be able to meet and fulfill its short term and long term obligations. If it cannot, then it will be unable to fulfill client orders and is at risk of losing out on sales and business. Therefore financial management’s role in the business world can be seen in maintaining sales volume.

A business may need to apply for a loan or raise additional funds needed for expansion or just survival. Financial management will allow it to secure loans or make use of other financing activities to raise funds and manage the interest payment. Financial management helps the business decide whether to opt for equity or debt financing. It will match the business’s ability to sustain and manage its financing activities without compromising its cash flow. Mismanaged, the business can end up in high debt. Financial management’s role in the business world can be seen in helping the business arrange for additional funds without straining its activities.

Therefore, financial management’s role in the business world is a critical one. It is up to the finance manager to ensure the business’s survival, growth and ultimately its profitability. Each business needs to have a dedicated finance department, given financial management’s role in the business world.

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