The Importance of Financial Management in Business


Financial management is an essential process to be implemented by any profitable company because it provides the most efficient methods to organize the corporation’s finances. This factor is sometimes crucial to accomplish particular goals and objectives of any company. The following paper is to discuss the importance of such processes like accounting and financial management in business.

Strategic Plan and External Financing

A company’s strategic plan plays a significant role in the process of financial management. It would be proper to say that the strategic plan that was developed by any company’s employees gives an ability to organize continuous processes and fund flows in financial management (Collins 616). For any profitable company to implement an efficient method of accounting for all the financial transactions, it would be advantageous for it to develop a strategy, which will provide a visual understanding and a full image of its financial processes. The main purpose of a company’s strategic plan is to regulate such financial processes as employees’ salaries, manufacturing expenses, income rates, and so on.

Some profitable companies with positive cash flows do not seek external financing because it does not seem necessary for their leaders. In reality, it is very logical for any company that increases its incomes month by month to seek external financing (Collins 616). If a company’s profit is constantly increasing, it means that more consumers pay for various services or products. Once, some company’s resources might not be able to provide particular services or products to its customers anymore due to the lack of equipment, employees, primary material, and so on. Therefore, if a company is successful and shows good results in gaining profit, its leaders need to seek external financing, which will let other citizens participate in this business (Collins 690). One of the most effective ways to obtain investment is to sell stocks to regular people who think that a particular company is potentially profitable.

Financial Statements

The primary purpose of any company’s income statement is to provide financial results of its multiple activities during some period. It includes such identifications as all sources of the organization’s profits and all its financial expenses. This report is beneficial to analyze and implement new strategies of financial accounting in a company.

The balance sheet is a financial report, which has the purpose of demonstrating all the assets and liabilities of a particular company. The balance sheets also provide all the necessary information about every owner’s finances that were gained due to the company’s profits (Collins 705). These reports are instrumental to visualize the finances of any company to reorganize some factors and to improve the presence of the corporation’s assets.

In turn, a cash flow statement is a report that accurately demonstrates, lists all the sources of the company’s incomes, and all the sources of its financial expenditures. It also provides a certain classification of both expected and unexpected sources of profit and expenses. This is usually used to forecast the liquidity and creditworthiness of a company (Collins 620). Moreover, it makes the process of financial analysis much easier with the help of visualized data.

Statement of owner’s equity is a report that has the purpose of demonstrating all possible methods and variations of any owner’s capital account. This report is usually produced by analyzing such factors as incomes, withdrawals, expenses, and particular contributions. The elements mentioned above provide a full image of one’s account to analyze various movements, to identify the type, and to determine the capital’s turn in a company.

Work Cited

Collins, Karen. Exploring Business. The Saylor Foundation, 2014.

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