Finance Management Defined:
Financial management is a subject in finance that institutes and elucidates on the planning for an individual or business enterprise for long-term purposes. Financial management can be delivered as a course load in an educational environment or may be delivered by a financial professional, such as a financial planner or adviser.
Financial management aims to ensure a positive cash flow for the individual consumer or investor through the institution of efficient investment, habitual savings, and frugal spending. The practice includes the administration and re-evaluation of financial assets as they pertain to an effective long-term financial plan. Additionally, financial management covers and elucidates upon the process of identifying and subsequently managing the potential risks associated with leverage, investment and spending beyond one’s means.
The primary concern or focus of financial management deals with the assessment—as oppose to the techniques—of financial quantification. If hired, a financial manager will evaluate the available data (financial plans, tax statements, income statements and expenditures) to judge the performance of an individual’s financial statements or a business model.
As a result of this process and concern, financial management aims to maximize efficiency through the administration of a thorough cost/benefit analysis. Financial management thus, will investigate and evaluate the expenditures of a consumer or business enterprise and compare those costs to their respective investments and income. Furthermore, the field of financial management will delve deeper into an enterprise’s or individual’s financial state by evaluating their respective long-term goals and the means utilized to achieve such goals.
Various Levels of Financial Management
In a broad sense, the process or study of financial management takes place at two distinct levels: the individual interpretation and the business application.
At the individual level, the process of financial management involves the creation of a financial plan in accordance with the resources and assets of the respective individual. In the most simplistic of senses, those individuals who earn high incomes or who hold a surplus of cash must invest their money wisely to negate the impact of taxation and inflation. In this situation those individuals must also be wise in how they spend their discretionary income; individuals with a surplus must make financial decisions that will benefit them in the long-run and help them achieve their financial goals in the future.
From a business point of view, the process or study of financial management is typically associated with financial control and the institution of financial planning. Financial planning will seek to quantify the various financial resources of a business model and subsequently compare them to its expenditures to create a suitable investment strategy.
In contrast, financial control refers to a business operation’s cash flow and the effective monitoring of the cash flow that is necessary to establish a strong business model. Cash inflow refers to the amount of money coming into the respective corporation, while the outflow refers to the corporation’s expenditures. Managing this flow of money in relation to the corporation’s budget is essential to institute and maintain an efficient business model.