Role of Financial Management 1. Strategic role of financial management Businesses have specific goals they wish to achieve in relation to the investment in capital (machinery and technology), training of staff, marketing and the expansion of operations. The strategies that a business adopts work towards achieving its goals both in the short and longer term. Developing a strategic plan will ensure that the business Business goals and objectives Businesses exist for a number of purposes that are translated into goals. For example, a business’s goals may include: Business objectives break the business operations into achievable and manageable outcomes that can be measured and evaluated. Objectives give a clear indication to management of where the business wants to be. Goals are the longer term outcomes of a business and can be achieved by using financial strategies. A strategy is Strategic plans Strategic plans are the most important plans for a business. They encompass a long-term view of The strategies that a business uses to achieve its goals are incorporated into a strategic plan. Managing financial resources Financial resources are those resources of a business that have a monetary or money value. Financial management is the planning and monitoring of a business’s Financial management is crucial if a business is to achieve its financial goals. The mismanagement of financial resources can lead to problems such as: Strategies for monitoring the financial resources of a business must be incorporated into its strategic plan. This involves: 2. Objectives of financial management For a business to achieve its longer term goals it must have a number of short-term, specific objectives. The objectives of financial management are to maximise the business’s: 1. 2. 3. 4. 5. The responsibility of financial management is to make decisions This will involve Profitability Growth Efficiency Liquidity Solvency Short-term and long-term financial objectives The financial objectives of a business are based on the goals of its strategic plan, which can be translated into both the short and long term. Short-term financial objectives – Long-term financial objectives – 3. Interdependence with other key business functions The interdependence of the key business functions (operations, marketing, finance and HR) means that each one must interact with all of the other functions in order to achieve the goals of a business. Finance plays a crucial role in funding extra resources. Business goals tend to be based on improvements to profit levels and have their origins within the financial function of a business.