Finance in simple words would mean money and other assets.
Finance management would refer to the generation of the money
and assigning and utilizing the reserves of the individual,
business or any other institution as the case may be after due
consideration of the risks involved in their respective plans.
Finance management would essentially mean to put to use an effective
system, which would manage the difference between the inflow,
and outflow of cash and taking into account the risks involved
in their investments.
A unit where the income surpasses expenditure can loan or invest
the surplus in projects, which can generate good returns. Alternatively,
a unit where the income is lesser than expenditure can generate
funds by borrowing, selling equity claims, bringing down its
expenses or raising income. The lender can find a borrower through
a mediator such as a bank. The lender accepts interest on the
money loaned and the borrower pays an interest, which is higher
than what the lender receives. The mediator takes the difference.
For e.g. Banks bring together the activities of many borrowers
and lenders. Banks accept deposits and pay interest on these
deposits. Then this money is loaned to other borrowers for a
Finance can be broadly classified into two: Personal finance
and Business finance.
PERSONAL FINANCE - One
would have to answer various questions when planning for personal
finance. For e.g.:
How much money the individual/household at various junctures
would require in the future
How would one generate this money
What are the measures to be taken to protect one from the contingencies
in the future Etc
All these questions are very pertinent in taking financial decisions
and these decisions would reflect on ones finances in the future.
Therefore, it is very essential that personal finance is treated
with utmost care and the earlier one begins with finance management,
the better it is.
Personal Finance management
would include small changes in ones lifestyle and habits. Few
minute changes in your life would go a long way in catering
for a comfortable future. It is not a difficult task but it
requires you to be meticulous in your approach and a certain
amount of discipline in life. A very important aspect is to
prepare a budget and ensure that you stick to it. Sticking to
a budget is not an easy task but with time and effort, it will
be possible. If one makes it a point to balance the chequebooks
at regular intervals, you would be able to monitor the expenses
of the household. Prioritize i.e. be sure whether you want a
certain thing before you go ahead and buy it. It is possible
that the money will be required for something more important.
Save as much as possible. The amount may seem less at present
but slowly you would see that the money is growing. Drops and
drops of water make a mighty ocean. Every single penny saved
will help in the future.
BUSINESS FINANCE - Business finance management
would include a lot more than personal
finance as it is on a much larger scale. Business finance involves
providing funds for the various activities of the business.
Essentially, there are two types of funds: Long term and short
term. The former is for the as the name suggests for the long
term requirements of the organization and the latter is for
the day to day functioning. Finance management would include
identification of the objective i.e. the time required, tax
considerations etc. Formulating a strategy to achieve the set
targets and finally assessing the performance. There are two
very important aspects to this: Financial management services
and Financial risk management.
FINANCIAL MANAGEMENT SERVICES
The ultimate goal of financial management is maximization of
wealth. To get to a target one has to first manage the day-to-day
finances well. Managing the day-to day finances can be considered
as short-term Finance management.
Apart from this financial management also deals with other goals,
which includes business profitability and viability. Achieving
theses targets involves lot of other activities such as cash
management, financial accounting, financial risk management
etc. All this seems like a lot of work particularly for businesspersons
running small establishments. There are many financial management
software products available, which makes the handling of these
tasks easy. On the other hand, businesspersons can also make
use of services of a financial manager or look for companies
providing such financial management services. By doing so one
can save time and effort, which are very curial to the success
of ones business. One should remember that the bigger the business
finances need more attention. Money management is not easy.
The decisions taken could lead to huge financial gains or losses.
Choosing a financial management service provider should be done
with care and caution. The reputation and experience of the
company is of vital importance. One should select a company
that has a proven record of accomplishment. It is equally important
to know fine point such as the exact services that would be
provided and their fee. It would be advisable to seek suggestion
from other business associates who have sought the help of such
firms providing Finance management
FINANCIAL RISK MANAGEMENT
Risk can be defined as a likelihood of an unwanted event happening
because of a decision taken at present. There are certain risks
that we would willingly take as we might consider them to be
worth taking and those that we would avoid for we might end
up paying a huge price for it.
Financial risk management refers to the whole course of recognizing,
evaluating, and treating risks. Since businesses are faced with
a number of risks, financial risk management is also a specialized
Risks are a part of any business and financial risk is one that
every businessperson will have to face at every juncture in
ones business. Therefore, it is important that one understands
financial risk management well. This will not let them avoid
risks completely but will ensure that they are better equipped
when faced with one.
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