Do you ever think what is financial literacy? Why it’s important for businesses? These are the questions that need to be answered in “yes” if you want to run a successful business.
Simple ways to manage our expenses and spending money by making a balance between the value of time and money lost paying taxes etc — everything is part of financial literacy which must for most of the people and businesses to be run efficiently.
Financial literacy lacks all around the globe, it’s something that needs to be acknowledged and efforts should be made to improve it. Businesses tend to fail due to poor management of finances, mainly due to a lack of financial literacy.
Why is Financial Literacy so Important?
Knowledge of finance will allow the business to make choices of buying and spending and a look towards what the business owes.
The business will become self-sufficient once the sponsors are financially literate. It will allow them to different investment possibilities by knowing financial markets and other financial tools.
Once a business understands the cash flows of its finances, they are likely to avoid different frauds. Financial knowledge will allow the business to foresee any risk associated with any financial decision which business wants to take.
It is part of the overall management of the business. It is not only restricted to the fundraising
process but also covers the utilization of funds and monitoring its uses. The overall health of the firm is affected by its financial operations.
Financial management in the business is related mainly to raising/acquiring the funds for the business or firm in a favorable way, utilization of the funds to achieve maximum profitability at a certain level of risk and planning the future investment of the funds.
Scope and Functions of Financial Management:
The main objectives of financial management are to arrange sufficient funds for meeting the short-term and long-term financial requirements of the business. These finances are procured at minimum cost to maximize profitability.
Given these factors, the financial management scope concentrates on the following areas of the finance function of a business.
(i) Financial Requirements:
(ii) Capital Structure:
(iii) Sources of Finance:
(iv) Investment Decisions:
(v) Management of Profits:
(vi) Management of Cash Flow:
(vii) Financial Controls:
Role of Finance Management in a Business:
Businesses require effective financial management to play a dynamic role in a modern market place.
In earlier days, financial managers were primarily engaged in,
(a) Raising funds, and
(b) Managing the firm’s cash flow.
But nowadays with the developments and increasing complexities in the business, the responsibility of the financial managers has increased and they are now concerned with the decision-making process involving finance, i.e., capital investment.
Today external factors, like competition, technological change, economic uncertainty, inflation problem, etc., create complicated problems for financial managers. They must have flexibility to adapt to the changing external environment for the survival of their firm.