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Finance management
| 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 higher interest. 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 services. 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 field. 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. Other Articles |
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