Financial management is a significant process for small-scale or large-scale businesses. It is the process of attaining goals through careful financial planning by efficiently controlling and organising. Financial management also reviews the financial resources at its disposal. Since financial resources are limited and conditions in the finance world constantly change, effective financial management is what guides businesses and individuals toward success.
As reported by the Emarketer, financial institutions that offer personal finance management (PFM) tools are particularly attractive to younger, tech-savvy consumers. These tools help in managing finances efficiently.
In this blogpost, let’s understand various objectives of financial management. Achieving these financial management goals is vital for any business to thrive. Thus, most entrepreneurs take personal loans in Kolkata to help upscale businesses.
Goals of Financial Management
The main goal of financial management is “profit maximization.” This involves evaluating and optimising the use of available resources to achieve the highest possible profits. You must focus on profit maximisation. Companies aim to deliver increased returns for their shareholders. It ensures the investors receive the greatest possible return on the investments.
1. Profit Maximisation
Profit maximisation is considered to be one of the main objectives of financial management. Profitability is surely a sign of a healthy business. It also allows it to stay competitive, expand, and innovate. To increase profit, you should focus on increasing revenue, decreasing expenses, or a combination of both. In financial management, profit maximisation is the main priority. You should focus on making the maximum possible revenue while keeping expenses as low as possible. This is done in different ways, including pricing strategies, optimising production, or increasing the number of products sold.
If the goods or services are priced higher, the demand usually falls. In the same way, if there is too much cost-cutting, the product’s quality hampers, leading to a decrease in demand. Thus, a perfect balance has to be struck while following regulations and firm ethics.
2. Wealth Maximisation
Wealth maximisation is a recent approach compared to profit maximisation. Profit maximisation has various limitations. These limitations are not considering the business scale, ignoring the time value of capital, and neglecting the shareholder’s interests. It is also a short-term objective.
Although wealth maximisation is a more integrated objective, it focuses on the shareholder’s interest. Wealth maximisation aims to maximise the business value in the long run. Its structure is based on cash flows rather than profit, considering the time value of money that is a rupee is worth more today than tomorrow. Wealth maximisation considers how a company’s dividend policy affects the market price of its shares. Not only do high dividends keep shareholders happy, but they also create a high value and reputation for the business in the market.
3. Maintenance of Liquidity
Liquidity is understood as to how efficiently an asset is converted to cash. For instance, if you invest in gold and want to liquidate it, you won’t have much trouble finding buyers for a fair price.
Another case can be that if you have a property and find it hard to sell fast. Suppose you do find buyers but might not get a fair price for it. Managers try to find a balance between profitability and liquidity, ensuring there are resources available to meet short-term obligations.
4. Financial Requirements Planning
You must be aware of the financial requirements of the business to upscale its growth. Financial planning’s key role is to facilitate smooth operations. There is a business requirement for sufficient funds.
Funds are required for expansion, marketing, operational expenses, working capital, and capital expenditure. Financial managers assess these funding requirements, making sure that the business has the necessary resources. Financial managers must assess whether there is no significant shortage or surplus of any resource.
Various factors are considered, including production scale, operational scale, number of employees, and required technology. Financial requirement planning must be done efficiently. It helps to avoid financial crises.
Conclusion:
To sum it up, although everyone wants to make a quick profit, it’s not always the most sustainable option. You should consider various aspects, including following regulations and managing resources ethically. Planning crisis plans and balancing risk with reward promotes long-term success.
Various objectives of financial management, from profit maximisation to risk management, ensure the long-term survival of a business. These objectives are crucial in optimising financial resources and promoting sustainable growth. Proper financial management ensures making sound financial decisions leading to a secure and prosperous future.