Financial management can seem like a daunting task, but with the right tools and strategies, it can be made much easier. In this article, we’ll discuss some of the objectives of financial management and how you can achieve them using different types of financial tools.
What is financial management?
Financial management is the process of creating and managing financial resources to meet desired objectives. It is important for businesses to have a clear understanding of their financial goals so they can make wise decisions when it comes to budgeting, investing, and lending. Financial planners can help businesses achieve their financial objectives by creating budgets, setting financial goals, and helping to monitor progress.
Types of financial management objectives
The objectives of financial management can be divided into three categories: short-term, medium-term, and long-term.
Short-term objectives of financial management
Everyone wants their financial goals to be met, but it can be hard to stay on track when your short-term objectives (things like making ends meet this month or saving for a down payment) conflict with your long-term objectives (reaching your retirement goals).
Short-term objectives are important for financial management because they help to guide the overall strategy of a company. They can be used to measure progress and ensure that goals are met.
Some common short-term objectives include increasing profits, maintaining liquidity, reducing risk, and meeting debt obligations. It is important to keep in mind that short-term objectives do not have to be SMART: specific, measurable, attainable, relevant, and time-bound; but they can be flexible, depending on the situation.
It is important to consider the long-term implications of meeting each short-term objective. For example, if a company wants to increase profits, it may need to make some investment decisions that may have long-term consequences. If a company wants to reduce risk, it may need to take on more debt or reduce its spending. It is important to weigh all options carefully before making any decisions.
Short-term objectives should be set at regular intervals and updated as necessary. This will help ensure that the company is moving in the right direction and that its goals are still achievable.
Many organizations set short-term objectives to achieve specific outcomes. For example, a company might want to increase sales by 10 percent in the next quarter. A short-term objective might also be to reduce inventory by 5 percent. The most important aspect of setting short-term objectives is to make sure they are achievable.
Once a company has identified its short-term objectives, it must develop a plan for achieving them. This plan will include identifying the resources needed and determining when and how those resources will be used. It also should include establishing milestones and deadlines for each step of the plan, as well as tracking progress toward goals.
Short-term objectives of financial management should be monitored and adjusted as necessary to ensure that the organization is achieving its long-term objectives. A variety of measures can be used to adjust short-term goals, including evaluating performance against past goals, making changes to business strategies, or altering budget estimates.
Medium-term objectives provide a framework for monitoring progress towards longer-term goals and help identify adjustments that may be necessary.
The following are medium-term objectives of financial management:
- Maintain appropriate levels of liquidity and capitalization.
- Minimize risk and maximize returns.
- Address short-term cash flow needs in a responsible way.
- Plan for and respond to changes in market conditions.
Long-term financial management objectives
Long-term financial goals take many years to achieve. These goals could mean having a comfortable retirement plan for an individual or improving an organization’s profitability, creating shareholder wealth, and fulfilling social responsibilities.
Long-term financial objectives can be achieved by following the SMART concept – specific, measurable, attainable, relevant, and time-bound. Specific goals are easy to measure, so you can track progress over time. Achievable goals are within your ability to achieve but may still require some effort or investment on your part. Relevant goals concern issues that will help you achieve your ultimate goal. Time-bound goals give you a deadline by which you want to achieve the goal.
As we take a look at some of these objectives of financial management, you will have a better understanding of how each can be applied to your personal finance or to grow a business.
Objectives of financial management
- To provide a framework for managing financial risks to achieve financial stability and growth
- To provide guidance on how to create and maintain a budget
- To teach individuals about personal finance concepts
- To increase revenue and profit for companies
- To explore options for long-term savings
To provide a framework for managing financial risks
An objective of financial management for companies is to ensure financial stability and growth while meeting the needs of the organization’s stakeholders. Stability means that the financial position remains unchanged from one period to another, while growth means that the organization’s income or assets increase over time. Growth also refers to an increase in the level of service provided to the organization’s stakeholders, such as shareholders or customers.
Meeting the needs of an organization’s stakeholders is a key objective of financial management. This includes balancing the risks and rewards associated with a given decision so that everyone involved in making decisions about the organization’s finances feels confident about those decisions.
To provide guidance on how to create and maintain a budget
A good financial plan begins with understanding your objectives. Financial management is about creating a budget that aligns with your goals and objectives, taking into account your current financial situation and future needs.
To teach individuals about personal finance concepts
Objectives of financial management include helping individuals make smarter choices about money and investments, protecting their assets, and avoiding financial pitfalls. Individuals need to understand basic concepts such as saving for a rainy day, maximizing retirement savings, and investing for the long term in order to achieve these objectives.
For example, having good knowledge of how to manage your finances can help you to save rather than save. Everyone should have a plan for saving money so that they can deal with unexpected expenses or emergencies that may make them go into debt. This could be putting money away every month, setting up a savings account, or using specific funds to cover specific costs (ie. car repairs).
Additionally, individuals should be aware of their unique circumstances and take steps to account for them when making financial decisions.
To provide increased revenue and profits for companies
The goal of any profit organization is to generate revenue. The more the revenue, the more the market value of a company increases; one of the financial metrics that shareholders or investors look out for is revenue, sales, and how efficiently the company utilizes funds (measured using efficiency ratios). A company with a good financial manager would see optimal use of finances which in turn increases the growth and revenue of the company. Therefore, profit maximization is the key objective of financial management.
To increase business stability
An effective financial management system can help to create stability for a business. It can also help to improve cash flow and reduce the need for external funding. Additionally, good financial management principles can help to identify and mitigate financial risks that may lead to business failure.
By using sound financial practices, a business can increase its stability and ensure that it is able to meet future financial obligations and avoid pitfalls such as too many debts and risks.
Effective management of finance can help a business to:
- Minimize risks: one of the most important objectives of financial management is to minimize risks. By correctly managing your risks, you can reduce the chances of experiencing financial losses. This will help you maintain a stable business environment and protect your assets.
- Maximize returns: this means making sure that you are getting the most out of your money by investing in profitable ventures and minimizing expenses. This will help you grow your business and achieve greater prosperity while staying ahead of competitors. It means better marketing, better sales, and better productivity when funds are utilized efficiently.
- Maintain liquidity: It is essential for businesses to maintain liquidity in order to operate smoothly. Liquidity refers to the ability of a company to meet its short-term financial obligations. By maintaining liquidity, you reduce the chances of experiencing long-term financial problems.
What is the goal of financial management?
The goal of financial management is to ensure the organization’s financial stability, growth, and profitability. Financial managers must identify and assess the risks and opportunities associated with the organization’s financial assets and liabilities, and make decisions that will optimize the organization’s overall performance.
What purpose does financial management serve in business?
Financial management helps a business to set goals, plan and budget resources, and make decisions about where to allocate those resources. Financial management also includes monitoring and controlling expenses to maintain a healthy balance sheet and protect the investments of an organization.
What are the different roles of a finance manager in a company?
Financial managers must have a strong understanding of accounting, banking, investment, and risk management in order to effectively manage a company’s money.
How do I understand financial management in life?
Financial management is important in everyday life. There are many different types of financial goals that individuals may have, such as saving for a future expense, investing for future income, or anticipating sudden costs. Each individual’s needs are unique, so it is important to consider what type of financial goals are important to you and how best to reach them.
Some tips for understanding financial management include setting realistic goals, tracking progress towards those goals, and making changes if needed. By taking these simple steps, you can become better acquainted with your own financial situation and manage it more effectively.
Financial management is the process of overseeing and managing finances in order to achieve set goals or maintain economic success.
The main objectives of financial management include preserving capital, providing liquidity, and efficient use of funds to meet goals. Preserving capital means ensuring that a company has enough money to grow and pursue new opportunities.
Providing liquidity means being able to access funds when needed and preventing a company from becoming overextended.
Meeting strategic objectives involves ensuring that a company’s money is used efficiently in order to achieve its goals.Last Updated on November 6, 2023 by Nansel Nanzip Bongdap
Nansel is a serial entrepreneur and financial expert with 7+ years as a business analyst. He has a liking for marketing which he regards as an important part of business success.
He lives in Plateau State, Nigeria with his wife, Joyce, and daughter, Anael.