Financial management in simple terms refers to the ability to guide people and organisations in the right course on how to spend his or her money. For wealth to be generated there are certain financial principles which have to be grasped regardless of if it is about a small commercial enterprise or a global enterprise, or even the personal one’s finances. Let’s examine core concepts of financial management in layman’s words:
1. Equitable
Consistency means that financial management policies and practices are done uniformly across all the corporations’ activities. This means that for firms to make meaningful comparisons at different points in time there is a need to be consistent in their techniques in accounting, the reports that they give and the budgetary procedures in place. Inaccurate information results in mistakes, misunderstandings and ineffective financial strategies.
2. Timeliness
It is critical to financial management that accurate financial data is available on time. This is important because time is a key component of being able to respond to the market. If data is provided on time then firms can act on it on time. Perhaps more importantly, understanding it provides you with scenarios such as when to take up a new project or when to make cost reductions before it becomes a problem. The information used in the decision making process of finance may be wrong or old, and this will impact decisions that are made.
3. Objectivity
As a result of impartiality, the financial decisions are guaranteed not to be distorted by biassed thoughts or emotions. They do this with the purpose of avoiding making decisions that are random and will have a negative impact on the performance of the business. For this reason, financial reports and analyses should never be influenced by personal bias.
4. Openness
Being transparent in financial affairs means communicating in an honest, open, and clear manner. It entails the use of honest, open and clear information delivery in financial affairs. It ensures that all stakeholders of the company including investors, staff and management for example are adequately informed about the financial standing of that company. This enhances trust and the running of the organisation is made easier. It means that poor decisions may be made and mistrust may stem from hidden financial facts.
5. Caution
Prudent behaviour is the action of being careful especially when dealing with uncertainty or even the unknown when making financial decisions. One must avoid underestimating an expense or overestimating a revenue stream. Companies might protect themselves from unplanned various kinds of losses, and ensure that they are prepared for a plethora of eventualities through prudence.
6. Responsibility
Every person engaged in financial operations bears responsibility for their decisions and actions, according to the concept of accountability in financial management. More responsibility should be placed with the departments and personnel involved in financial reporting, from lower-level employees to financial managers and officers respectively. Accountability contributes to the preservation of financial self-control and prudent resource management.
Conclusion
Sound financial decision-making is based on these six principles of financial management: The principle comprises qualities such as; Timeliness, Objectivity, Transparency, Prudence and accountability. If you adhere to these principles you can emerge as a winner financially for the long haul, whether it’s your business or your own money. According to these suggestions, you may improve your financial health and make better decisions in a broader sense.
