For every company to run efficiently and without any hindrance, profits are needed, and profits can only be achieved through means of proper financial management of a company. While profit is dependent on a variety of other factors, which may include sales revenue, expenses, taxes, cash flow, liquidity etc, management forms the core function in order to organize all these different elements in a proper manner as to maximize profits and keep the business running, ideally leading to business success. For example, a company could be making tremendous sales which could potentially turn into massive profits for the business, however due to lack of sufficient expertise, or bad management, there are many unnecessary expenses that the business is incurring, thus off-setting the high sales revenue and generating either profits which are lower than expected or losses. This highlights the key role that the management plays.
A business must keep proper records of all its transactions as well as records of important business activities. There should be a proper system implemented. While this is true of all departments, there is a lot of weight and pressure on the procedures adopted by the finance department, as without funding and finance, the business cannot function. A business must keep books of entry, ledgers, as well as important documents such as an income statement, a cash flow statement, a statement of financial position etc. These reflect different areas of the finance of the business. Auditing must also be done in order to present a clear picture of the business’s records as well as to legitimize the business activity. Since not everyone has the expertise of handling the financial intricacies of a business, accountants are hired to make sure that everything runs smoothly and without error.A business also has a responsibility towards the society as well as towards the government. This affects the company in many ways. One being the negative impact it could have on the business if proper relationships are thus not founded.
This ultimately affects the business’s funding as, in the event of unethical behavior or some mistake on the business’s part, the company could face a legal case, and this will potentially lead to paying compensation, which is usually a huge amount. In addition to this, such bad publicity could cost the business sales inadvertently leading to lower or no profits. The business also has the commitment of paying taxes. It is important that all these taxes and tax returns are recorded, and managed properly, as you never know when you might need these records.Thus, proper management of funds is important and effective.