Tuesday, December 18, 2012

Financial Management and Budgeting in Business

The importance of financial management

Finance is an important function of management. This area is commonly known as financial management. The term defines the achievement of key financial objectives by investment decisions and financially. Essentially, it is the management of all processes related to the acquisition and provision of effective both in the short and long-term financial resources. Financial Management will help the management of an organization, financial goals, such as to achieve the creation of wealth, solvency, liquidity, growth and return on investment through a process of financial planning, control and decision making.

Financial Control

Financial control consists of different strategies to the necessary finances, manage to achieve the main objective of any business that create value. Budgets are the traditional method of financial control and provide a basis for performance measurement, which can be evaluated. Can engage in a process of annual budgeting to make a business plans and forecasts for the coming year. Control measures must be taken if the actual performance does not seem to be the appropriate budget outline. Therefore, monthly monitoring of expenditure control methods implemented if the costs are higher than the numbers in the household (such as spending cuts or overtime) to be. And find out why the numbers do not match the annual budget plan, a company can not make plans for this purpose in the future. Monthly monitoring of expenditure is another example of financial control. These data include cash on hand, the total cost of wages and hours of work main resources, unusual household spending or higher.

The three main financial statements

The three most important qualifications needed to analyze and improve the sustainability of public finances:

Record 1) - "A balance sheet shows a company's assets and claims on assets

Profit and loss account 2) - "(A financial statement and the profit and loss account) called and measures shows the profit (or loss) of the Company for a period generated.

3) The cash flow statement - "a statement of sources and uses of cash for a period '

By analyzing these three statements on a regular basis, a company can proactively anticipate problems and opportunities before they occur. The three most important qualifications are also classified as financial controls, as these statements are used to understand and interpret. Financial condition of the company as a means to manage and control States allow a company to establish guidelines and policies that support the growth and success of the company. An annual income will be considered the most important financial statements and UK companies required by law to submit a profit and loss account to Companies House. Regarding cash flows, the cash flows are payments for goods and services and interest on savings and investment. Payouts are a combination of many things, including the procurement actions daily operating expenses, capital and government taxes. A company is also required to produce an annual report. It provides a report of assets or liabilities.

Budget and Budgetary Control

Budget may include a qualified statement over a period of time, the projected revenues, expenses, assets, liabilities and cash flows. It is to work a short term plan for financial goals. There are several types of budgeting, these styles -

* Correction - ignore variations

* Flexible - bends or Rule

* Continuous or rolling - continually modified

* Base Zero - Needs Assessment

* Incremental - uses previous budget with increment

Budgets are needed to help provide a basis for monitoring, to identify problems in the short term and to promote forward thinking. However, there is a need to adjust budgets if they become unrealistic due to sudden changes in the business environment. This is called "Flexing the budget" (which simply means the revision of the budget) are known.

A deviation report is necessary to indicate whether the performance. Above or below the budgeted level This is the difference between the amount budgeted expenditures and revenues and the actual costs and revenues as well as analysis of variance. Budget can also affect behavioral changes motivate the management team and employees to achieve better performance and to promote forward thinking.

Effective business planning

A business plan has many elements, but not a business plan is not complete without this financial information. To be effective for business planning, budget, and the three primary financial statements (income statement, balance sheet and cash flow statement) must be considered. The financial statements are the core of a business plan, because they are used to identify different business strategies. Financial planning is available to all elements of a business plan. Five strategic plans with a budget (plan) associated with: 1) and created the role and objectives, 2) an analysis of the situation to commit 3) to identify and evaluate strategic options, 4) the selection of strategic options, 5) conduct verification Control. Taking into account all these factors into account can a company create an effective business plan with financial data and projections.