MODERN APPROACH TO FINANCIAL MANAGEMENT

Henry Ford has once remarked “Money is an arm or a leg; you either use it or loose it”. Though the above statement looks simple but it is quite meaningful. In the today’s money oriented economy finance is one of the basic foundations of all kinds of economic activities. Actually finance is the backbone of every business.

MEANING OF BUSINESS FINANCE

Business Finance is the business activity that is concerned with the acquisition and conservation of capital funds in meeting financial needs and overall objectives of a business enterprise. There are three A’s in Financial Management

- Anticipating Financial needs
- Acquiring Financial Resources
- Allocating funds in business

MANAGEMENT OF MONEY IN BUSINESS

Handling a business is similar to handling a home, with all the different expenses to consider preventing the business from going under with deficits and bankruptcy. A business has “children” in terms of all the employed workers working hand-in-hand and with utmost efficiency to make sure that the finances float above break even. There is one main focus for a business to thrive and exist in security and balance, and that is the knowledge of knowing how to manage money in business with the overhead and operation expenses.

THE RIGHT APPROACH

According to the modern approach the term financial management provides a conceptual and analytical framework for financial decision making. That means, the finance function covers both acquisition of funds as well as their allocation. This new approach views the term financial management in a broader sense. It is viewed as an integral part of overall management.

The modern approach of financial Management can be divided into four major decisions as function of finance:

- The investment decision
- The financial decision
- The dividend policy decision
- The funds requirement decision

INVESTMENT DECISIONS

This is concerned with the allocation of capital. It has to show the funds can be invested in assets which would yield benefit in future. This is a decision based on risk and uncertainty. Finance Manager has to evaluate the investment in relation to their expected results and risk to determine whether the investment is feasible or not.

FINANCIAL DECISIONS

This decision is concerned with the mobilization of finance for investment. The Finance Manager has to take the decisions regarding the acquisition of finance. Whether entire capital required should be raised in the form of equity capital or the amount should be borrowed totally or a balance should be struck between equity and borrowed capital has to be decided. Even the timing of acquisition of capital should also be perfectly made.

DIVIDEND DECISION

The dividend decision involves the determination of the percentage of profit earned by the enterprise which is paid to the shareholders. The dividend payout ratio must be evaluated in the light of the objective of maximizing shareholder’s wealth. Thus, the dividend decision has become a vital aspect of financial decision.

CURRENT ASSETS MANAGEMENT

The Finance Manager should also manage the current assets to have liquidity in the business. Investment of funds in current assets reduces the profitability of the firm. However the finance manager should also equally look after the current financial needs of the firm to maintain optimum production. While investing in current assets, he should see that proper trade off is maintained between the profitability and liquidity.

Money Management and Earning

Money Management is associated with saving, budgeting, investing and financial planning. However, the truth about managing money is that it is just a concept that encompasses a larger scheme of handling money. The way to manage money and earn more is more than just a single way concept. Not only does managing money mean being able to keep money per se, but also to be able to mobilize the money that we have to the direction in which we intend them to go. This includes financial management, investment, business ventures, and leisure activities.

More Saved, More Resources

Though it is quite confusing to understand how to make money and what are the ways to be able to earn more when one is saving more and not the other way around, the concept of the former dictates the effect. Being able to save more will give you more freedom to allocate the money in what business and endeavor one seeks to have. In conjunction with the previous statements, managing money does not only mean saving, but being able to have the resources to move about. You may take expert advice from financial service providers or money managers for investment in stocks etc. In this case, having more money in the bank or floatingly available enables you to use them for businesses or leisure. At the same time you should not ignore the insurance aspect.

The Power of Capital

Should you choose to invest your earnings and savings on a business venture, one thing that limits one’s capability to start off with the desired business is the capital needed. Though most business ideas require a substantial amount of money, these are the big establishments which require a corporation of several investors with investments in the millions. As a private businessman or entrepreneur, one may start with a personal business of a small nature such as handcrafted items or services, and work your way up from there. Once you start rolling in the Benjamins, you are on your way to choose your path to either retain your business or go higher up the economic chain. Capital and the way to manage money and earn more in the process is a tricky and risky thing to do though. Be prepared to accept a losing business as well. However, I suggest trying making money on internet as there are various ways to earn money online.

Wholesale Concept

Another concept which enables you to earn more is to keep a wholesale concept in mind at all times. This is simple defined as being able to see that the more you acquire in a single deal, the more you save, and the more you save, the more you are able to use that savings for other businesses or other requirements, therefore cutting down on the total projected expenses. It may not be always be the case for many, especially if one has a very limited capital to invest. Nevertheless, what is more important is that one is able to work efficiently in one’s own means of production and not depend on floating bonds and loans as these are the usual causes of a business to stay stagnant and not earn due to the interests. It is quite daunting to manage money and earn more, with the consistent juggling of resources and risks to achieve at something without foolproof success. However, a properly set management and a little bit of luck will definitely rake in big rewards to the whole process. Starting small and working up rather than starting with big things right away is crucial to the learning process and the tricks and trade as well in business handling. This is what will matter especially when the competition becomes tighter in the higher business environment.

Effective Ways To Manage Money

There are many ways and tips on effective ways to manage money in general. Technically, all these tipstalk about one thing: being able to have money when needed, where needed. A lack and wanting desire to acquire money when the call arises does not necessarily mean not being able to manage money effectively, but may just be an overshoot of unexpected events. Nevertheless, the person should be able to acquire and find ways to come up with the needed amount if ever there is a strapped budget from the unexpected event that needs to be complied.

Look At The Future Goals
One of the most important and progressive value of a person to have effective ways to manage money is to have a sense of foresight. This foresight pertains to the ability of a person to know what things are most probable going to happen to him in the future and be able to prepare beforehand with substantial amount of time. With this is a responsibility of being able to properly organize the timeline and the budget allocation of funding and financial allocation. Also in this regard, the consideration of all other fees, bills and payment allocations would have to be properly identified and included in the plan.
An option of having to put an allowance or extended goal would be beneficial to the planner to allow himself to adjust and be able to cope up with unexpected events with a bit more ease. In this manner, the one who manages the money is able to have an extra for a rainy season ahead.

Invest, Invest, Invest!
Another method to effectively manage money is to invest in progressive and productive endeavors which could be other sources of income. Instead of just allowing the savings to rest in a bank and earn a small amount of interest per year, it would be wise to allocate some of the money and other resources into a business. Of course it may prove unproductive and detrimental, but the allowance of such resources to different paths of productivity would widen the scope in which a person could determine and discover the best way to manage and have more money to alleviate the status in society.
Investing does not only mean having to go into a business venture but also in being able to become a stockholder, no matter how small into an existing business. Being a stockholder and becoming a part owner of a running business puts the self into a profit oriented state by having a percentage of the earnings that the said business generates. Nevertheless, the risk of losing the capital used for this investment is as great as having a self owned one.

The 3:3:4 Paradigm
This paradigm takes into account that all the other utilities and monthly bills have already been paid and the amount left is the extra money that is left floating. Most probably many would not be lucky enough to have this, or if possible just with a tiny amount. Still, no matter how small the amount is, it is a good start. The 3:3:4 paradigm means that 30% of the floating money is to be saved in the bank, 30% is then used to allocate for the investments of choice, and the remaining 40% is allocated to the leisure and luxury of the household. The last aspect is important to provide a sense of reward for the earner to clear the mind of burden and discouragement.
These aspects when combined together are more often than not effective ways to manage money and not be burdened of having to earn money to pay off a previous debt. This would be helpful to the earner to look forward in a progressive pace of living rather than retroactive maintenance.