7 Core Principles of Financial Management for Any Bussiness

Financial management plays an important role in the success of a business. Effectively applying financial management principles will help businesses use capital reasonably, increase profits and ensure sustainable development. In this article, Dealnew will introduce some basic principles in corporate financial management that you can refer to to have a multi-dimensional perspective on corporate governance.

1. The role of corporate financial management

Financial resources are likened to the "blood" of a business, nurturing the entire business. When the blood is good, the business will be strong and develop well. Conversely, when the blood is not good, the business will encounter many serious problems. At worst, the business may weaken and not survive.

Corporate financial management plays an important role in ensuring the stability and sustainable development of the enterprise, is the internal strength that helps the enterprise solve major problems such as human resources; technical equipment; investment projects; products;...

Financial management helps managers achieve their goals quickly through planning, allocating resources, investing effectively, controlling finances, and solving problems, all of which contribute to the success of a business.

A well-managed financial business will help the business operate smoothly, improve competitiveness and achieve long-term sustainable development.

2. Seven principles of corporate financial management to remember

Finance plays an important role in ensuring and maintaining production and business activities for enterprises.

Corporate financial management is not easy, so many managers pay special attention to effective financial management methods.

There are 7 financial management principles that business administrators need to remember to ensure that cash flows effectively and safely.

2.1. Principles of profitable corporate financial management

The principle of profitability is the first and most important principle of financial management.

According to this management principle, all financial activities of an enterprise must aim at generating profits and maximizing profits.

Businesses need to use capital effectively to increase revenue, reduce costs and create the highest profits for shareholders.

2.2. Principle of balancing risk and profit

The principle of balancing risk and profit is the basic principle in corporate financial management. To get Risk and profit always go hand in hand. The higher the profit, the greater the risk.

Businesses need to carefully consider the risks and benefits before making decisions about investing or raising capital. Accepting high risks should only be done when the potential for profit is also correspondingly high.

2.3. Principle of compliance with the law

One of the principles of corporate financial management that needs to be ensured is compliance with the law.

In business, accounting activities are required, investment activities and capital mobilization must comply with the law.

Violations of the law can lead to serious consequences such as fines, or worse, criminal prosecution.

2.4. Principle of liquidity

Liquidity in financial activities is understood as a term that shows the flexibility of financial resources or cash flow and other valuable papers.

When managing corporate finance, it is necessary to ensure the principle of liquidity. The enterprise must ensure that it has enough cash to pay its debts and meet its business needs. Lack of liquidity can lead to the risk of bankruptcy for the enterprise.

2.5. Principles of effective capital use

Businesses need to use capital effectively to generate the highest profits. This requires businesses to have a reasonable financial plan, closely monitor capital usage and take timely measures to handle ineffective investments.

2.6. Principle of transparency

Financial activities of enterprises must be carried out in a transparent and public manner. This confirms that business activities are genuine, honest and comply with the provisions of the law.

Enterprises need to provide full information on their financial situation to shareholders, investors and other stakeholders to show that the enterprise is a strong potential unit, operating following the law, enhancing trust and prestige in the eyes of customers and business partners.

2.7. Principle of responsibility

When managing a business, managers need to clearly define financial management responsibilities for each source of money for each individual, group/department and take overall responsibility for the financial management activities of the entire business.

Assigning responsibility will help financial management become more effective, and the individual or group responsible will be more strict and careful in managing their finances.

3. Tips for effective financial management in any business

Develop a Comprehensive Budget:
- Create a detailed budget that covers all aspects of your business operations, including revenue projections, expenses, and cash flow.
- Review and update the budget regularly to ensure it remains accurate and aligned with your business goals.
- Use the budget as a tool to monitor your financial performance and make informed decisions.
Maintain Accurate Financial Records:
- Implement a robust accounting system to track all financial transactions, including income, expenses, assets, and liabilities.
- Ensure that your records are detailed, organized, and compliant with relevant accounting standards and regulations.
- Regularly review your financial statements, such as the balance sheet, income statement, and cash flow statement, to understand the financial health of your business.
Manage Cash Flow Effectively:
- Closely monitor your cash inflows and outflows to maintain a healthy cash position.
- Implement strategies to collect payments promptly, negotiate favorable terms with suppliers, and manage inventory efficiently to minimize cash tied up in working capital.
- Explore a range of financing options, such as loans, equity investments, and alternative lending platforms, to fund your business operations and growth.

4. The benefits of effectively applying financial management principles will help businesses

Understanding the principles of corporate financial management is one of the basic knowledge when wanting to become a manager. The benefits of effectively applying the principles of financial management can be seen as:

- Help managers use capital resources reasonably and effectively;

- Increase profits and ensure sustainable development;

- Help managers achieve goals;

- Enhance business reputation and competitiveness in the market.

- Minimize risks and protect the interests of shareholders and investors.

Financial management is a difficult field that requires managers to have a lot of specialized knowledge. In businesses, managers need to build a team of highly qualified financial management staff and effectively apply the principles of corporate financial management to ensure success in business operations.

Hopefully, the above article from Dealnew will help you gain basic knowledge about corporate financial management, from which you can make the right decisions for your business. If you are a student majoring in a related field, this can be considered basic background knowledge to help you develop your expertise in the field of corporate governance.

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Reference:

https://corporatefinanceinstitute.com/resources/data-science/statistics-for-finance/