Principles of Financial Management

Financial Management is concerned with maintaining finances in a business so that it never runs out of cash. It is concerned with the financial requirements of a business as well as financial planning. Perfect financial management facilitates business to make ample profits, expand itself and succeed in the long-run. In general, there are certain principles of financial management:

1. Expenditure should be less than the revenues generated

Most of the businesses lose balance over finances and are unable to overcome or avoid debt because they spend more than the revenues generated. However, for a business to sustain its position in the long run and to look for further growth, it must frequently track its financial statement as well as expenses to avoid excessive outflow.

2. Plan for the unexpected

A business should always be well-equipped to meet the financial emergencies at any point in time. To overcome such point of crisis effortlessly, the business must save money and put restrictions on its cash outflow. This will protect the business in derailing from its long term goals or objectives. Thus, financial management must be robust to face any kind of consequences and achieve the desired goals in a limited time period.

3. Diversification is not just for investments

For any business, investments are believed to be the best method to ensure a regular inflow of cash. However, businesses should not just rely on investment, but they should regularly find different ways to generate more revenues.

Apart from businesses, even employees working in a company can finds ways to earn extra income. For this, they can look for a part-time business or start a small business at their dwellings. Thus, this brings a change in overall financial profile.

4. Organising

The very basic step for efficient financial management is to organise funds and finances. A business must track its different financial activities and sources which include brokerage, mortgage, loans or credit limit to avoid any chaos in the future.

5. Understanding risk

It is a golden rule that more the risk a business takes, more would be its return on investment (ROI). However, this is possible only if the business has massive information and knowledge about finances and investments. Usually, investment in shares and bonds are considered to be the best source for earning huge profits. But, at the same time they involve a higher risk too. So, financial managers should have an understanding of risks before taking them. 

6. Limited debt

To ensure a regular inflow of cash, a business must avoid taking unnecessary loans and clear all its previous debts. Furthermore, a business must opt for loans to procure necessary items only.

So these were the principles of financial management. Finance is the cornerstone of every business so companies look for finance managers who can maximise profits and minimise losses. If you wish to become a finance manager, then you can pursue Post Graduate Diploma in Management (PGDM) or Post Graduate Diploma in Business Administration (PGDBA) with Finance Management as specialisation from MIT School of Distance Education (MIT-SDE). The course trains the candidates to effectively manage the finances of the organisation and enhance their employability skills. So, apply for this job-centric course right away!