The year 2020 has been quite challenging across industries and businesses globally. Stock markets saw a bearish trend for several months. Rise in unemployment rates, increase in product costs, and a decline in profits are only some of the many crises triggered by COVID-19. The pandemic forced lockdowns and brought the world to a standstill. Nevertheless, we all learned to navigate a brand new normal.
Throughout everything, the most valuable lesson the pandemic taught us is the value of strategic planning. Strategic planning is crucial to challenge uncertainties, bear unavoidable losses and manage unforeseen hurdles with a brave face and a stern attitude. In businesses, strategic planning dictates the need for proper goals of financial management to be set up in advance to upkeep the financial health of the organization. Having financial management goals ensures that next time a pandemic tries to shake up your business, you have a proper plan in place that is able to mitigate its avalanche.
What are the Goals of Financial Management?
Every business needs to manage its finances adequately. Without proper goals of financial management, it is improbable for a business to ripe good profits and survive in the long term. These goals, in a nutshell, are milestones that an organization sets for itself to indoctrinate direction and clarity in its strategy. They guide the expenditure of the organization as well as hold an immense impact on the revenue. The main goal of financial management is to increase the shareholder wealth (increase shareholder’s value) and maximize profits. Most of the companies in the world set SMART goals to ensure timely realization and precise execution of these core financial management goals.
Why Is Setting Up Financial Management Goals So Important?
Goals of financial management are utilized stringently for the longevity and survival of any business and there are many benefits of them:
- – Aids in funds allocation and acquisition
- – Helps in making critical financial decisions
- – Leads financial planning
- – Helps in noting the future potential of the company
- – Provides a realistic and clear view of the financial objectives of the organization
Components of Financial Management
As the main goal of financial management is to increase the shareholder wealth, there are some key components that help to properly establish it.
1. Financial Plan
For any business, it is highly imperative to prepare a financial plan. Such a plan includes financial objectives, timed targets, and strategies to achieve these targets. It analyses the values of assets available and assigns monetary resources to match the goals. It is important to note down each financial goal with their proper deadlines, such as a 5-year financial goal, and they should also include a contingency plan in case things do not progress as smoothly as planned.
2. Contingency Financial Plan
Contingency financial plan is inclusive of emergency funds and savings. It is necessary to have contingency plans, as its importance was one of the major observations business owners made during the rising situation of the pandemic. A contingency plan can be a part of your financial management goals as it includes reserves and monetary funds. The amount for contingency funds depends on the risks the business is willing to take, the general probability of uncertainty, and potential losses of the organization.
3. Business Budget
A business budget is a rough budget for the costs and revenue of running the business, and it can either be on a cash-basis or accrual-basis. Business budgets are usually prepared monthly, quarterly or annually. These budgets help in the execution of business processes as well as help to manage their operating finances.
Documents to Consider While Setting Up Financial Management Goals:
- – P&L Statements: measure the running profit and loss of the company after analyzing the tax, interest, depreciation, amortization.
- – Balance Sheet: assesses the financial wealth of the organization. It is also an indication of the financial potential of the business.
- – Cash Flow Statements: focuses on the in-flow and out-flow of cash.
Extra Points to Remember While Setting Up Financial Management Goals:
- – Solvency State of The Business: There are debts in every business. It is crucial to understand the long-term and short-term debt position of your business, and accordingly establish its solvency state. This will help greatly to set long-term goals.
- – Deferred Payments: There are many deferred payments as well in a business – payments that are rolled out after a certain date. It is important to take deferred payments (and income) into account as well.
Role of Bookkeeping in Setting Up Financial Management Goals:
Financial Management is no piece of cake. It requires you having to collect, edit, analyze, and compare a lot of files and documents on a daily basis and update them in your books. If there are any entries missing within the books, then your financial analysis will be at risk to falter.
Even a mistake of a single number can amount to huge losses and erroneous goals of financial management. It is only through the vast amounts of transactional information available in the books that a company is able to understand its financial status clearly. Thus, bookkeeping contributes an excellent value towards financial management.
However, most of the time it gets quite hectic for a company to manage bookkeeping alongside all the other functional areas of the company. Therefore, many companies prefer to outsource bookkeeping to online services to ensure proper and hassle-free financial management.
Some prominent benefits of outsourcing include:
- – Reduced burden on the company
- – Extra set of hands-on work
- – Double-checking of the information on the books
- – Customized features and personalized financial advice (provided by some bookkeeping services)
- – A smooth system for the flow of financial statements
It is a lot easier to achieve and manage your financial management goals with a reliable bookkeeping services. Services such as Monily are self-regulating and enhance the productivity flow by providing you customized services that you choose specifically based on the needs of your business.
So, to ardently pursue your financial management goals, it greatly helps if you outsource to a reliable bookkeeping service. This will not merely equip you with timely and accurate financial planning, budgeting and analysis, but it will also enable you to make informed strategic decisions for business growth.