The word “capital” is short for “cash and other assets.” It includes cash on hand, money owed to the business, investments, and stock on hand. Also, money is used to pay for activities and projects and to lessen the effects of things that could go wrong. One type of capital is the money that shareholders put into businesses. Goals of financial management will be covered in-depth in this article, along with various examples for your convenience.
“Financial management” in a business setting is the process of allocating resources (like money) to meet strategic goals. It involves planning, organising, and controlling the financial activities inside a company. The process of financial management includes analysing cash flows, investments, financing, and risk management and making decisions about them. This helps businesses increase their profits and get closer to their goals.
Goals of Financial Management
One of the most important jobs of business owners and executives is to make sure the company’s money is well managed. They have to figure out how the decisions they make as managers will affect the bottom line of the company. Every smart business owner knows that every part of their business affects the bottom line and needs to be carefully looked at and managed. In this article, we will discuss about goals of financial management in brief with examples for your better understanding.
Create Budget Every Month
This is how easy it is. To create a budget, one needs to make a list of all monthly costs. This list should include not only necessities but also shopping, medical bills, fun weekend trips, child care, and other expenses. Miscellaneous expenses often cause the total expenses to exceed the budgeted amount. Add 20% to what you spend each month. You can buy a surprise gift for someone special with the extra money you’ll have every few months.
Emergency Expenses / Requirement
Costs that come up out of the blue, like medical bills, theft, death, natural disasters, and so on. Just like in Plan A, people need insurance for the same reasons. What if Plan A doesn’t work, though? There must also be a backup plan. Because of this, it is usually best to cut costs in more than one way. People keep putting their money into real estate, mutual funds, insurance, and stocks, among many other things. The goals of financial management are to ensure the long-term financial stability and success of the organization.
Other Costs Sometimes Come up
These costs can be anything from a new car or laptop to home repairs, trips, and new appliances. People usually save a small amount of money each week or month or keep some cash at home to cover these costs.
Learn to Manage Money
These lessons will teach us the basics of how to plan our money well. Every person has a different goal when it comes to managing their money because everyone has different needs and wants. But there are some basic goals that everyone should have when it comes to managing money.
Budgets that can be Changed
Even if it’s just a little bit, the monthly budget will always change. Checking in once a month is very important. For example, if a family spends $200 more than they planned, even though they tried hard not to, they should take this amount out of the budget for the next month to cover the extra cost. The goals of financial management also include controlling costs to improve efficiency and profitability.
Irregular Income Management
If you keep getting the same amount of money, you will probably run out of money quickly. There is also a high chance of spending more than one can afford. Because of this, these two threats are important for families whose income changes often. This is the case when a person’s income depends on the work they do in their own job or business (not salaries). Because of this, it is important to put money aside every month in case of unexpected costs that are more than what you make.
Maximizing Shareholders Value
Managers are expected to make choices that increase the value of the company for the shareholders. The value of the company’s stock plus the value of its debt is equal to the company’s market value. Creditors of a business already know what they can claim.
In this way, the market value of a company’s shares goes up when its worth goes up. When the value of an equity goes up, it means that shareholders will get more money back. This goal is more important than making as much money as possible.
Making a high-quality product, setting and sticking to clear goals, keeping shareholder conflicts to a minimum, and other things all make a big difference. Another goals of financial management is to achieve a positive return on investment for the organization’s shareholders and investors.
Maximizing Profits
The stated goal of financial management is to make as much money as possible. A business’s profit is equal to its income minus its costs. Either bring in more money while cutting costs or cut costs while bringing in more money will help you make the most money. Using the right pricing and scaling strategies can help you make the most money possible.
If raising the price doesn’t cause a drop in demand, the most money can be made. Due to the price-elasticity of demand, the best way to maximize profits is to sell more. To keep costs down, you need to know what prices are and how they change with volume. You also need the inputs market to be in your favor. So, a number of things must work together to get the best results and make the most money.
Maximizing Revenue Goal
To get the most money, you need to take actions and make decisions that bring in more money and cut down on wasteful spending. Managers and supervisors of financial resources are in charge of making the best investment decisions. Initiatives that are financially sound and make money should be strong enough to reject those that don’t fit with the goals of financial management.
In the business world today, the idea that a company’s main goal should be to make as much money as possible is being questioned. This is mostly because people don’t know how valuable their time is, things aren’t clear, people don’t know how valuable a high-quality product is, and so on.
EPS Maximization
To achieve the highest EPS, a company must maximize profits after taxes relative to the total number of outstanding equity shares. This goal aligns with the objective of generating as much income as possible, which is beneficial and necessary.
There is a lot of information about both the type of profit and the comparison basis. In order to get the most money per share, companies often don’t care about how their dividend policy affects them. This can cause the value of the company to go down.
Savings for Deferred Goals
Everyone has wants and needs in the near future, like buying a house, sending their kids to college, starting a family, and so on. For example, housing is a big expense that requires you to save regularly. Insurance, real estate, mutual funds, bonds, equities, and fixed deposits are all excellent investments. Another important goals of financial management is to ensure compliance with financial regulations and standards.
Liquidity Maximization
A company’s “liquidity” refers to its ability to pay off short-term debts as they become due. Various factors determine this ability, including the liquidity ratio, composition of current assets, quality of non-cash current assets, relationships with creditors and bankers, and other similar factors.
Maintaining a high level of liquidity requires a balanced mix of current assets, healthy and easily convertible current assets, and an understanding of creditors and willingness to help bankers.
However, achieving this goal is not entirely selfless, as every business needs to generate enough income to cover expenses and avoid failure. While having a lot of cash on hand can present opportunities, it could also lead to inactivity and must be balanced with profitability.
Manage Expenses
The next step is to get the paperwork ready so that an economic analysis can be done. It is important to make a plan that will help you reach all of your goals with the money you have now and the money you expect to get in the future.
When you make a budget, you decide how much of a certain amount will go towards different goals, like purchases, savings, and paying off debt. It’s important to keep a few key things in mind when trying to reach your financial management or allocation goals.
Plans for the Future and Goals for Life
These are the long-term goals of planning for retirement. It’s not a good way to get by to depend on your kids. No one likes it, so it’s not a favourite among people. Because of this, they put a lot of value on planning for retirement. These everyday costs are monetary goals. In reality, all of these costs are necessary (minimum achievable goals). It’s always a good idea to set goals that are more than just the bare minimum.
Frequently Asked Questions
What is the most Important Goal of Managing Money?
The main goal of financial management can change based on what the person or organization wants to achieve. Still, the main goal is usually to make as much money as possible while taking as little risk as possible. Companies commonly plan ahead and make decisions based on market research and analysis to ensure long-term success.
What are the Two most Important Goals of Managing Money?
The main goals of financial management can vary from company to company and from situation to situation. Still, the main goals of financial management are to make as much money as possible and to avoid taking risks. This could help the company make as much money as possible for its shareholders and make sure it has a bright future.
Which is the most Important Goal of Financial Management?
The job of a financial manager is to increase the value of the company as much as possible so that shareholders get what they paid for. In the end, the shareholders should be the ones to benefit, so that is the right goal to work towards. They could lose all of their money.
Conclusion
After a review, all the information about the most recent finances can be laid out. Setting goals is important for giving plans direction and meaning. Work that doesn’t mean anything is like a journey with no end. This shows how important it is to set goals for managing money. In this e-learning, we will cover budgets, goals, and the big picture of financial management. This article will provide an in-depth analysis of the goals of financial management, along with various examples for your convenience. For a different perspective on sources of financial management topic, read this insightful analysis.
