Basics of Financial Management

Financial Management involves planning, organizing, directing, controlling and monitoring the financial resources of an entity in order to achieve the overall financial objectives of the organization. It involves putting in place systems and procedures that adequately capture financial information and safeguard organizational resources from misuse and loss, it means applying general management principles to the financial resources of the enterprise. Managers need to develop the necessary understanding and confidence to make full use of financial management tools .Basic skills in financial management start in the critical areas of cash management and bookkeeping, which should be carried out following certain financial controls to ensure integrity in the process.

At the core of financial management is the concept of financial control, which describes a situation where the financial resources of an organization are being correctly and effectively used. For managers develop a real understanding of the financial condition of the organization, they should learn how to plan their cash flows, develop budgets and Interpret Financial Statements.

The main objectives of financial management are:

Managing scarce resources

Organizations operate in a competitive environment. In order to survive, organizations need to manage the scarce resources efficiently.

Managing risk

All organizations operate in a volatile environment and face risks both internal and external, if not managed; such risks can threaten operations and even survival of an organization. Manages must identify all possible risks and put in place risk mitigation strategies to help minimize the impact of such risks.

Managing strategically

Financial management goes beyond the day to day management; it involves planning for the financial needs for the organization both in the short run and long run. Put it simply, it means keeping an eye on the “bigger picture” rather than focusing on the individual projects, products or services of an entity.

Return on Investment

Provide an adequate return on investment bearing in mind the risks that the organization is taking and the resources invested or the impact an NPO programs had on the intended beneficiaries.

By following proper financial management techniques, an organization will significantly increase the likelihood that:

  • Financial information it provides to the stakeholders is reliable, accurate and useful to decision makers,
  • Assets and records of the organization are not stolen, misused or accidentally destroyed,
  • The organization’s policies are followed,
  • The organization is compliant with regulations from the government and conditionalities from donors

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