Financial Management: Understanding, Purpose, Function, and Principles

financialtreat – will explain about Financial Management: Understanding, Purpose, Function, and Principles that you will get in the following article. Let’s look at this article carefully!

Financial management has an important role for anyone, especially companies. Without good management, of course, I will not be lucky. We may not know where our money is going. The money that was originally a lot of people didn’t know where it suddenly ran out.

Because of the importance of financial management, there is no single company that does not implement it. A good company will definitely have good financial management. Similarly, every successful person must have good financial management as well. Therefore, this time we will peel it thoroughly regarding the management of the financial. Happy reading!

Understanding Financial Management

Finance in a company becomes a strong foundation for the formation of a company. Finance is also very risky. If not manage properly will be an amburadul and will certainly stop the course of a company. In a company neede its own field that takes care of the financial part or can also be calle financial management.

Financial management is the activity of planning, managing, storing, and controlling funds and assets owne by a company. Financial management must be planne carefully so as not to cause problems in the future.

One example in doing financial management in both large and small businesses is to make a complete record of finances, be it cash flow, daily, weekly, and monthly turnover records, and business purchase records are important things that need to be done.

Why Financial Management Is Important

Financial management is also important for businesses or small businesses for a variety of reasons, such as the following examples:

  • Strategize, or identify what will happen financially for the company to achieve its short- and long-term goals. For example, leaders need insight into current performance for scenario planning.
  • Decision-making, or helping businesses decide how best to execute a plan by providing up-to-date financial statements and data on relevant KPIs.
  • Control, or ensure each department contributes to its vision and operates within budget and in line with strategy.

The Purpose of Financial Management

This financial management must have clear goals, there are several financial management objectives:

Maintaining Cash Flow

In a company, the entry and exit of cash must be monitore continuously so that there is no bloate expenditure. As a result, it can cause company losses. Cash is usually spent to buy raw materials, pay employees, and other expenses.

Maximizing Company Finances

The task of financial management is not only to supervise finances, but also to see the activity of the fund budget that is unfavorable to the company that can be eliminate and replace with activities that are more profitable to the company.

Preparing the Capital Structure

Financial Managers in planning the capital structure must be able to balance the budget owne by the funds borrowe by the company.

Maximizing Profits

Proper financial planning will be able to maximize the profits that can be obtaine in the long term.

Increase Efficiency

By budgeting the right funds on all aspects, the efficiency of the company’s funds will continue to increase.

Optimizing Company Wealth

Financial managers should also be able to read the stock market. By providing the maximum possible profit sharing to shareholders, it will certainly increase the company and give shareholders confidence to continue to invest in the company.

Reduce Operational Risk

The right decisions made by financial managers will affect uncertain business risks at all times.

Ensuring the Survival of the Company

Financial managers play an important role in the course of a company. The right decision will be able to make the company survive in business competition, but otherwise a decision that is not careful will cause a company to go bankrupt.

Reducing Capital Costs

Financial managers must make proper capital planning, so that the use of capital can be minimize in such a way.

Financial Management Functions You Should Know

In addition to the above financial manager goals, financial managers must also have a clear function. Do not let the financial manager has any function and only stand alone. There are several functions of financial managers:


Planning finances in a company is very important. Financial planning includes managing cash, calculating profit losses, planning cash flow.


Budgeting is the activity of allocating funds for all the needs of the company. This allocation must be done to a minimum and maximize the existing budget.


Controlling is controlling or evaluating ongoing finances. Evaluations are carrie out to improve the company’s financial system so that the company can survive.


Auditing is the process of financial examination. Examination of the company’s finances in accordance with accounting rules will avoid misappropriation and deviation of company funds.


Reporting is reporting finances. Process reporting on company finances must be carrie out openly and transparently in all circles of the company. This report is useful for providing information on the financial state of the company.

Principles of Financial Management

There are also some financial manager principles that must be applie in every company. These principles are:


Accountability is a moral and legal obligation that exists in a company. So that it can be known where the funds are obtaine, the funds are use for anything, and how the company uses the funds. All parties and aspects of the company should know how those funds and authorities are use.


The company’s financial system must be done consistently, not that the company should not replace the system that is already running. But with the change indicates the unstable use of funds.


Financial managers must be able to plan finances so that the company can continue to run and live. Financial managers must also have the right financial strategy.


The company must be transparent and open to the company’s finances. The company must provide information about its activities with intereste persons. Accurate, complete, and tidy finances can be easily accesse by any intereste manager.

Accounting Standards

The accounting system that applies in each company must be the same. All accountants around the world can understand and understand the same accounting system.


Financial reports and records must be maintaine properly. Financial statements should be made as complete and accurate as possible.


The company must be able to manage the company’s finances appropriately. The company must be able to guarantee that the budgete funds can be use in accordance with the goals and financial plans that have been made before.

Tips for Managing Financial Management

Once you know about the functions, objectives, and principles of a financial manager. We must also know how powerful financial management tips. Here are some tips for proper financial management. Well, here are tips in managing finances:

Separate Between Personal and Financial Accounts of the Company

Many business people still mix personal money and company money. Personal and corporate money must be separate, it is useful to measure the financial state of the company and avoid misuse of company finances.

When corporate and personal finances are combine, we will not know the financial flows of the company. This is because it could be that the company’s money is use for personal purposes. Therefore, separating the two is very important.

Allocate Expenses to Pay Yourself

Even though the company is your own, in every month you have to allocate and to pay yourself which is definitely according to your needs. If you borrow money in your own company it should also be recorde as debt and should be returne.

Create Financial Statements

Financial statements are made with the aim of knowing the entry and exit of money and being able to find out the profits and losses of ongoing businesses.

Make a Record of Cash Flow Projections

With the record of cash flow projections, the company can know when to issue funds and when it is time to receive funds. This note also serves to look for efforts before there is a loss to the company’s finances.

Avoid Money Staying at Employees

Do not let the company’s money be brought by employees who manage the company’s finances. It is likely that the money will be use for the personal needs of the employee.

Check The Stock of Goods

Checking the stock of goods periodically will minimize manipulation. Often it happens that the stock of goods that have been sold has not been sold. So, the funds that should still exist must disappear without a clear purpose.

Read more Wealth management:


Split Cashier and Accounting

The part that holds the cashier’s money must also make its own financial statements. Cashier money should be reporte every day, this is to avoid potential data manipulation.

To facilitate this, you can use POS and accounting software to minimize fraud and make it easier for you to monitor your business.

For maximum results you can use accounting software that has integration features with various cashier software, for example, such as Accurate Online.


Managing the company’s finances is not as difficult as imagine. The most important thing in financial management in a company is transparency and honesty, considering that financial problems in a company are very vulnerable to manipulation. For that, do the tips that have been discusse earlier as well as possible.

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