Effective Financial Management

Financial Management is about knowing how and where to put your money to ensure maximum returns. The objectives of Financial Management

1. Maximise Profits/Returns

2. Manage Risks

3. Allocation/Utilisation of Funds

4. Balanced Structure

A healthy business is the one that generates good profit and positive cash flow. How much is “good”? It depends on the type of business, risks associated with the business, how the business is funded and the kind of structure the business has in place.

In the past Cash Management was considered as a separate function independent of Management of Suppliers and Customers. Effective Financial Management is the way we understand the connect between these functions and how we manage the entire process. The process is called as Financial Supply Chain Management (FSCM).

FSCM is an end-to-end process that has 3 components:

1. Procure to Pay (P2P) – Procurement of Materials/Services and Payment for the same

2. Working Capital Management (WCM) – Maintain good working capital for the business

3. Order to Cash (O2C) – Sales and collection from Customers

WCM is tricky and essential to running business operations effectively. It connects the management of suppliers and customers, availability of cash, assess the requirements for funds etc.

WCM involves Planning, Forecasting and Decision Making. It is a specialised function that involves a good knowledge of the business, the processes involved, risks associated with the business, the way the business is structured and how can it be optimised.