Financial management defines the act of achieving the core fiduciary goals that a given company or individual works towards. Without a solid game plan, a business or person would be set adrift in a sea of financial uncertainty. In the case of a common business, this planning takes the form of a set of interrelated goals, all having to do with the wealth of the company and its continued existence as a cash generating organization. For a person, management concerns allocating money for immediate needs while storing money for a larger future goal. Basic financial management from a business and individual perspective will be discussed below.
Businesses – Internal Planning
As the most basic of financial duties, a company needs to be able to provide for itself. This includes paying for and continuing upkeep on a building, maintaining power generation and other utilities, and purchasing special services that may be tied to doing business within a specific industry. For example, a server company would invest heavily in a secure, cool data facility and install several layers of defenses to protect against hardware failures and power outages. Paying employee salaries falls under internal planning, though many companies choose to outsource this to online payroll services like those provided by Intuit. This frees up the need for a company to staff its own payroll departments.
Businesses – External Planning
For expenses not pertaining to the continued operation of the company, external financial planning is used to provide a means for the business to exert financial influence. This could mean putting money aside for acquisitions, investing in outside technologies, or storing money in different types of accounts. Long-term payment plans, such as installment loans, are used when making large purchases for things like new buildings. In a case like this, external financial planning is used to acquire the money and keep payments available over a time.
Things are not as complex as a business when it comes to dealing with an individual, but they can still feel daunting for those who have never had to manage money before. Much like a company, an individual can break down their financial planning into two areas: immediate and future. Immediate needs are food and shelter, as well as any critical services relating to health. Future planning sets aside money for medium and long-term goals that a person deems necessary to work towards. For instance, planning for retirement is an important long-term goal for many people. Using that example, a person may look into the financial planning section of the AARP to research methods for accumulating wealth and building up a nest egg.
Planning and Goals
The success or failure of a financial plan depends on the goals of the people behind that plan. Both a company and an individual share the same goal of using their money wisely to meet their financial targets. From a comfortable retirement to expansion into a new market, the fundamentals are the same. Good financial management is a skill that everyone should have.