What is financial management?

Financial management is a set of actions, methods and processes that enable the control, analysis and planning of an organization's financial activities.

Simply put, they are all actions aimed at managing resources of a business. Its aim is to guarantee the health of operations.

Good financial management allows for more assertive decision-making regarding investments, fundraising and business expansion.

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What is financial management for?

Financial management serves to keep an organization's expenses in balance with its earnings, so that it can operate profitably.

It works by controlling and analyzing all the financial indicators and, based on them, provides the manager with an accurate picture of where the company is and where it is going.

It serves both to show whether the company is making a profit or a loss, and to determine the potential for investment in new areas, equipment, software, personnel, etc.

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Pillars of financial management

There are 4 pillars that are considered fundamental to the financial management of any business. See below.

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Planning

Planning aims to define the goals to be achieved, taking into account various factors. These include analyzing the financial situation, identifying investment opportunities and optimizing resources.

When planning, companies determine their goals and draw up plans taking into account adverse scenarios, such as possible emergencies, crises and other difficulties.

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Control

Financial control is nothing more than verifying the execution of processes. It allows you to monitor the development of actions in real time and, if necessary, propose corrections in an agile manner.

Financial control can be corrective or preventive and avoids errors, losses and rework.

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Analyze

This pillar comprises two stages: data analysis and results analysis. The first aims to optimize processes, while the second looks for better opportunities to optimize deliveries. One action complements the other.

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Investing

In financial management, every investment must be based on data. They need to provide measurable results that contribute to the health of the business.

Investing is therefore always a strategic move. Whether it's buying assets, acquiring equipment, hiring or any other operation.

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How important is financial management for a company?

Poor management of financial resources can have serious consequences for a business, such as poor investments, debts, stagnation and even bankruptcy.

Financial management, then, is crucial to ensuring the continued development and growth of any business. In other words, if a company wants to grow, it needs to dedicate itself to responsible and intelligent management of its financial resources.

It is through this work that it is then possible to identify whether resources are being directed correctly. What's more, with a good database, it's easier to cut extra costs.

The management of financial resources is directly related to the health of a business and therefore to ensuring its continued operation. The better an organization's financial management, the greater its chances of achieving its goals.

Financial management is important for

Honoring the financial commitments made by the organization;
Maintaining a relationship of trust and credibility with employees and suppliers;
Investing as much as possible in the growth of the business;
Increase revenue and keep cash flowing;
Preserving the company's assets;
Maintaining the quality of the products or services offered;
Keep the business attractive to investors.

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What are the consequences of poor financial management?

Financial management is a business practice that produces actions and reactions. If it is poorly executed, the business will consequently have its goals compromised and will operate at the risk of losses.

Among the most common consequences are financial losses. These can happen in the short term, but also in the long term. In other words, poor execution can drain the company over time, compromising its financial capacity and investment potential.

As a result, the business is unable to develop, it remains stagnant and at a certain point, it may collapse.

Data from IBGE showed that of the companies created in Brazil in 2012, around 40% ended up closing down within 5 years of operation. This is the result of poor financial management.

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The most common mistakes in company financial management

Lack of periodic performance reviews;
Inefficient stock management;
The owners' personal finances mixed up with those of the development;
Disregard for working capital;
Lack of planning and priorities;
Uncontrolled anticipation of receivables;
Lack of control tools.

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How can a technological management system help the financial sector?

Advances in technology have enabled the creation of increasingly efficient solutions to optimize companies' financial management.

Technological management systems automate essential organizational processes and help to keep the organization competitive in the market.

Adopting a good system can then bring surprising results for the business, such as:

Process automation, ensuring much greater speed and assertiveness;
Centralization of information, i.e. all data is kept in one place, with no risk of losing information;
Efficient stock management;
Detailed monitoring of data and information with reports;
Assertive control of resources.

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Where to find a financial management technology system?

Although there are many solutions available on the market today, hiring a financial management system that combines tradition with cutting-edge technology can be a major challenge.

But the good news is that you've come to the right place! CLM Controller is an accounting firm with unique solutions for your business. Our systems have partnerships with companies such as Oracle, Ommie and Conta Azul.

If you need to rely on experienced accounting advice, capable of providing the best strategies for your company to improve its financial performance, get to know CLM Controller's solutions now.