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Created on 14.01.2019

What does financial management mean?

Income must be higher than expenses, and revenue must exceed expenditure. This might seem trivial but securing cash flow for your business is certainly not a trifling matter for the management. The tools of financial management will help you in this respect. We outline the most important of them here.

The following tools are a vitally important part of financial management and controlling and lay the foundation for it:

Accounting

Accounting provides the management with a decision-making basis and helps with financial controlling. It ensures that cash and payment flows are systematically recorded and monitored. The data produced helps with the financial management, planning and controlling of the company. It also provides further information for external parties, such as investors and auditors.

Financial accounting

As part of business accounting, it documents all transactions in specific figures. It calculates the company’s comprehensive income through the profit and loss account. It also provides the management with information about the current financial situation in the balance sheet and how the company is performing in the profit and loss account.

Accounts receivable

Accounts receivable is part of financial accounting. It records all customer-related business transactions. This includes receivables, credit, deliveries and other payments.

Investment appraisal

The investment appraisal provides the key decision-making basis for investment. It takes account of all data that can be calculated, helping to assess the risks of planned investment, their profitability and amortization.

Liquidity statement

The liquidity statement sets out expenditure and income. Companies use it to make sure they always have sufficient funds available to settle their invoices on time.

Why good financial management is so important

Effective financial planning is a key part of success in business. Without it a company could not commence and sustainably continue its business activities.The issue of financial management is vital to survival in business, especially for SMEs and start-ups. The aim is to make efficient and effective use of the resources available.It’s the management’s job to identify the tools that will help them with financial management. A company’s management must control the financial flows and associated transactions in the business and thus secure liquidity.

Financial management nevertheless involves far more than an arduous task and controlling. In the best-case scenario, it allows the management to intricately control its strategy, to undertake necessary changes at an early stage and to mobilize employees for the common cause. 

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